Can banks save the planet?

Robert, we need to discuss more about speculation. Too much of the economy has become speculative. We need to find an acceptable definition for speculation and then ban the negative aspect of it.

The planet doesn't need saving and even if it did the banks would not be the ones to save it.

The environmental problems we face are nowhere near as severe as politicians would like us to believe, they have all, without exception, over emphasised the threat we face for political reasons.

> The point being that not all financial innovation is either
> harmful, fatuous or a gull.

I was under the distinct impression that "financial innovation" had cost me and
my Britsh friends around £850bn. What part of it was not "harmful, fatuous or
a gull"?

A numerical example will demonstrate why a financial transaction tax on derivatives is such a bad idea. Please bear with me here...

Consider an especially liquid interest rate futures derivative contract such as March 2010 Eurodollars. Eurodollar futures are used by many large companies, government bodies and investors as a hedging instrument against changes in three month US dollar deposit rates. Typically, companies or government entities do not want exposure to interest rate fluctuations that are not central to their core business activity, but such risk naturally arises from the business cycle and funding requirements. The use of such a derivative enables companies to reduce their interest rate exposure to a negligible level and manage a component of their non-core business risk.

The current (16-Dec-09) two way price of Mar-10 Eurodollars traded on Chicago Mercantile Exchange is 99.595 offer, 99.59 bid, implying an interest rate of 0.405% to the borrower and 0.41% to the lender of 3 month USD Libor funds at the future date of March 2010. If a transaction tax on derivatives was imposed at 0.02% on both legs of a derivatives transaction, any market maker in Mar-10 Eurodollars would have to reduce their bid price by 0.02 and increase their offer price by 0.02 to cover the costs of the tax. To incorporate the tax into their spread even the most aggressive liquidity provider (market maker) would have to adjust their price to AT LEAST as wide as 99.615 offer, 99.57 bid.

Hence the spread for this product would increase from 0.005 (0.5 basis points) to 0.045 (4.5 basis points), a NINEFOLD increase, and a new cost to any person or institution that would like to hedge its exposure to interest rate fluctuations.

Of course volumes would drop enormously due to the additional costs of hedging...many end users would now decide not to hedge at all, creating additional risks for their businesses, whilst market makers that currently provide liquidity would be forced to withdraw from this activity completely. Estimates suggest that volumes would drop by at least 70-95% in most derivatives, in which case brokers and exchanges would also be required to increase their fees and commissions in an to attempt to cover for lost revenues and stay in business. This in turn would cause market makers to adjust their pricing again ensuring an even wider spread level than the theoretical 4.5 basis points.

Crucially, the theoretical tax revenue that would be generated from the tax is based on the assumption that volumes would not drop after the imposition of such a tax. This claim is laughable, with the reality being that derivative volumes would be 5-30% of the present volumes. Possibly less, many of the products currently traded would simply not trade at all. Additionally, there would be lost revenue to the taxpayer that would otherwise have been generated from the profits of the trading community, brokerages, exchanges and financial software support companies.

The Eurodollar example is just one picked at random, it is not hard to find countless other examples, but when you compound the effects across every stock, bond, commodity and the foreign exchange markets then you are creating an enormous total cost and additional risks for every individual and business that manages its financial affairs.

When the public or politicians hear of a number like 0.02% it sounds small but the reality is that any such tax would be devastating for global capital markets. It is difficult to underestimate how big an impact it would have in terms of jobs lost and revenue lost to the taxpayer when volumes drop across all derivative markets to such an extent. There would be a significant reduction in capital flows, and if adopted at a global level it would potentially send the global economy into a new Depression. The Smoot–Hawley Tariff Act of 1930, an equivalent 'anti-trade' measure introduced at a time when a similar public backlash was taking place against Wall Street, was an important factor in deepening the 1930s Great Depression.

If Brown and Sarkozy get their way it would appear that history is repeating itself but with a different flavour. Their logic is deeply flawed. At first glance the tax appears 'small' to those outside of the financial community but everyone would be seriously impacted. The costs would simply be passed on to the small investor and non financial community and greater systemic risks would materialize. In short, it would be disastrous.

So 52 page Gov doc and...

P4 of said document "If using an electronic version of the document, please consider the environment and only print the pages which you need and recycle them when you have finished."

Content on pp 2,6,14,22,44,48,49,50,51 - NOTHING

Content on p3 exact copy of p1 but with change in colour of text.

That's how they think (or rather don't).

The last thing we need is surely to add yet more leglislation. Government was surely partially responsible yet we don't seem to be giving them a hard time over all of this.

Re Speculation - it's not a bad thing per se - however we almost all agree that risk-free speculation is. Again Government is fudging this.

This seems a very political document from the BoE but then I guess it is a political institution...

It is extraordinary how todays politicians spend most of their time looking at new ways of taxing their constituents, never at trimming the costs to match the income with a little put by for a rainy day!

Gordon has recently pledged £1.5bn of taxpayers money, which neither he nor we have because he has wasted it, to the thirld world to help them adjust to Climate Change, but only an extra £150m for our troops in Afghanistan.

The Third World (which includes China???) already gets billions from the so called rich countries each year. Perhaps they could be encouraged to spend this largess more prudently - on their own poor would be a welcome start! If not perhaps they could give it back to us to spend on our own?

I would gladly pay extra tax to better protect our troops, but not on this overheated Carbon emission rot.

The well known speculator Victor Niederhoffer, in "The Speculator as Hero"[4] describes the benefits of speculation:

Let's consider some of the principles that explain the causes of shortages and surpluses and the role of speculators. When a harvest is too small to satisfy consumption at its normal rate, speculators come in, hoping to profit from the scarcity by buying. Their purchases raise the price, thereby checking consumption so that the smaller supply will last longer. Producers encouraged by the high price further lessen the shortage by growing or importing to reduce the shortage. On the other side, when the price is higher than the speculators think the facts warrant, they sell. This reduces prices, encouraging consumption and exports and helping to reduce the surplus.

Another service provided by speculators to a market is that by risking their own capital in the hope of profit, they add liquidity to the market and make it easier for others to offset risk, including those who may be classified as hedgers and arbitrageurs.

If a certain market—for example, pork bellies—had no speculators, then only producers (hog farmers) and consumers (butchers, etc.) would participate in that market. With fewer players in the market, there would be a larger spread between the current bid and ask price of pork bellies. Any new entrant in the market who wants to either buy or sell pork bellies would be forced to accept an illiquid market and market prices that have a large bid-ask spread or might even find it difficult to find a co-party to buy or sell to. A speculator (e.g. a pork dealer) may exploit the difference in the spread and, in competition with other speculators, reduce the spread, thus creating a more efficient market.

Speculators also sometimes perform a very important risk bearing role that is beneficial to society. For example, a farmer might be considering planting corn on some unused farmland. Alas, he might not want to do so because he is concerned that the price might fall too far by harvest time. By selling his crop in advance at a fixed price to a speculator, the farmer can hedge the price risk and is now willing to plant the corn. Thus, speculators can actually increase production through their willingness to take on risk.

Another Banking story, Robert? Why not investigate other Business sectors..?

#7 Ben, you should copy and paste the Side effects of speculation from Wikipedia as well. Are you one of the "heroes"?

It is perhaps no wonder that the negotiations in Copenhagen are going so badly, linking so many issues together does little except to create muddle. There is a very simple proposition that needs to be addressed in Copenhagen, does it make sense to go on dramatically increasing the level of Carbon Dioxide in the Atmosphere by burning fossil fuels releasing carbon that has been locked away for hundreds of millions of years creating a significant risk of very undesirable consequences in the long term. If not then it is time to act or at least make a plan of action. Making such a drastic change to an incredibly complex system on which all life on Earth depends surely makes little sense.

As the UK Treasury is generally against hypothecated taxation it seems unlikely a link with environmental issues would be made. In addition the proceeds of such a tax really would be better used to build a fund for bailing out banks when the next crisis comes. The proposal does not look rigorous enough to get agreement from even a majority of G20 countries.

Regarding getting the Swiss and the Americans to agree to financial reform. In the case of Switzerland it arguably does not have the resources to carry out a rescue of it's financial sector. In the current crisis UBS problems arose very early in the crisis at a stage when it was much easier to deal with them. Had UBS gone under at the time Lehman went under then Switzerland may not have been able to carry out a rescue. The implications of that are quite interesting. So one way to force countries like Switzerland to play ball might be through the use of the banking regulation in Financial Centres like London and New York to force higher capital requirements on banks with banking operations in Switzerland.

One final thought on Copenhagen, getting agreement between 192 countries appears to be highly unlikely. Maybe no deal would actually be a lot better than a fudge, why? well it might galvanise leaders of the G20 into action.

Again the people were never asked if they agreed with globalisation. It was masterminded by the few who have albut sent the world into a tailspin of decline.

The same few who are trying to hold on to their ideals to the bitter end and hoping that ordinary people will continue to work hard and be prepared to lose their money every time the moneymen get too greedy and mess up.

This should have been the last warning. Globalisation in its present form is harmful to the people who live on the planet and the planet itself. Its purpose is to sell and sell until there is nothing left to sell because there are no resources left. Selfishness at its utmost without thought for the future.

A reversal of globalisation is imperative with each country putting its own house in order depending on the wishes of its people and utilising its own resources wisely. The endless growth has to end and sensible trading reinstated.

Casino banking will carry on but not at the expense of the populations' efforts. They make mistakes and they pay for them themselves.

We need safe banks run and guaranteed for the people by the people. That is the only thing that can save us now.

Those who seek world domination including one Gordon Brown should be sent to another planet where they belong.

I'm not even sure why I bother to ask the question, but I will - if the tax is compensation for the cost of bail-out insurance, shouldn't the proceeds then also be used for that purpose?

And correct me if I'm wrong, but isn't there also already plans to levy all sorts of taxes on other activities that directly affect the environment, thereby attacking the actual cause, and raising revenue for countermeasures at the same time?

Or could it simply be a blatant attempt at fleecing a soft target in the name of a good cause?

Is there any discussion of the benefit that is created from a market in financial risk? Did it occur to Robert that, for example, being able to transact the risk component separately from the underlying instrument, as a CDS does, allows both parties to tailor their portfolio in ways that would require many more "transactions", more fees and more waste without the existence of the CDS?

If the extent of the analysis is to assume that a "naked" hedge is a bad thing, we are indeed in trouble. Please get someone who knows what they are talking about to advise on this.

#7 Ben

You fail to mention that in a properly functioning market, speculation is not required. The buy and sell prices that you mention are a misnomer for 3rd party profit. The farmers and butchers would agree a price (this being both the buy and sell price) that was mutually agreeable without some spiv taking a cut.

Personally I think its unlikely Tobin tax will come in but would be great if it did - although it will probably mean a rise in spread betting and other methods etc which will probably be classified as a non-financial transaction.

Now this is a great article re Goldman Sachs...

https://www.rollingstone.com/politics/story/29127316/the_great_american_bubble_machine

Bubble 6 which is highlighted is how banks will use the carbon trading system as the next bubble - they'll "save the world" if theay can make stacks of cash by ripping off others

"BUBBLE #6 Global Warming

Fast-forward to today. It's early June in Washington, D.C. Barack Obama, a popular young politician whose leading private campaign donor was an investment bank called Goldman Sachs — its employees paid some $981,000 to his campaign — sits in the White House. Having seamlessly navigated the political minefield of the bailout era, Goldman is once again back to its old business, scouting out loopholes in a new government-created market with the aid of a new set of alumni occupying key government jobs.

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."

Cap-and-trade is going to happen. Or, if it doesn't, something like it will. The moral is the same as for all the other bubbles that Goldman helped create, from 1929 to 2009. In almost every case, the very same bank that behaved recklessly for years, weighing down the system with toxic loans and predatory debt, and accomplishing nothing but massive bonuses for a few bosses, has been rewarded with mountains of virtually free money and government guarantees — while the actual victims in this mess, ordinary taxpayers, are the ones paying for it.

It's not always easy to accept the reality of what we now routinely allow these people to get away with; there's a kind of collective denial that kicks in when a country goes through what America has gone through lately, when a people lose as much prestige and status as we have in the past few years. You can't really register the fact that you're no longer a citizen of a thriving first-world democracy, that you're no longer above getting robbed in broad daylight, because like an amputee, you can still sort of feel things that are no longer there.

But this is it. This is the world we live in now. And in this world, some of us have to play by the rules, while others get a note from the principal excusing them from homework till the end of time, plus 10 billion free dollars in a paper bag to buy lunch. It's a gangster state, running on gangster economics, and even prices can't be trusted anymore; there are hidden taxes in every buck you pay. And maybe we can't stop it, but we should at least know where it's all going."

Robert thanks for your stimulating blog. These are a couple of general questions about issues you have raised rather than specifically about today's blog - hope you don't mind.

1. We hear a lot of talk about "too big to fail" however I read an interesting article by a head of a city law firm who said the real issue was "too big to save". His point was that if another RBS was about to go under there would not be the money left to save it. Would you agree?

2. I read recently that a whole tranche of US sub-prime is due to be re-mortgaged and that this has high default rates. The article claimed that this might cause a second credit crunch - is this realistic?

Mr Peston wrote: Can banks save the planet?

I think that might go down as one of silliest questions you’ve asked this month, still if you really must have an answer, it is: No.

What you should’ve asked is: Who will save us from the greedy and merciless banks?

What we need is a state bank to provide a deposit and lending base for both individuals and companies, and sensible lending criteria.

The plain truth is that if the state (which is us) does not control ‘money’, the state (which is us) can only ever be at the mercy of those who do.

13 mcmullank

"You fail to mention that in a properly functioning market, speculation is not required."

Now I'm not quite as in favour of speculation as Ben seems to be, but what you are saying makes little sense, assuming rational individuals.

If the market is fully liquid (I assume that's what you meant?) then speculation is not only not required, it isnt beneficial to the speculator and therefore doesnt happen.

Only in illiquid markets, where the market price varies up and down more than is sensible, is speculating worth it for the speculator. And it is there they provide a potentially beneficial activity.

Side-effects should be considered, but rational individuals (and that includes producers and consumers) only take part in a market transaction when it suits them. So they arent being done over by 'some spiv taking a cut'.

#9 to answer your question - I am an independent trader working for myself, but unlike the large banks that were bailed out by the Government I did not cause the financial crisis and received no money from the taxpayer. Any losses from bad decisions are 100% mine. I act as a liquidity provider or 'market maker', taking the other side of derivatives trades and looking for small profits compounded multiple times. I risk less than 1% of capital on each trade, earn less than a teacher but enjoy my work and it provides an income for a family. I would be put out of business if a financial transaction tax was passed

As requested from Wikipedia some side effects of speculation:-
Auctions are a method of squeezing out speculators from a transaction, but they may have their own perverse effects; see winner's curse. The winner's curse is however not very significant to markets with high liquidity for both buyers and sellers, as the auction for selling the product and the auction for buying the product occur simultaneously, and the two prices are separated only by a relatively small spread. This mechanism prevents the winner's curse phenomenon from causing mispricing to any degree greater than the spread.[citation needed]

Speculation can also cause prices to deviate from their intrinsic value if speculators trade on misinformation, or if they are just plain wrong. For example, speculative purchasing can push prices above their true value (real value - adjusted for inflation) simply because the speculative purchasing artificially increases the demand.[citation needed] Speculative selling can also have the opposite effect, causing prices to artificially decrease below their true value in a similar fashion.[citation needed] In various situations, price rises due to speculative purchasing cause further speculative purchasing[citation needed] in the hope that the price will continue to rise. This creates a positive feedback loop in which prices rise dramatically above the underlying value or worth of the items. This is known as an economic bubble. Such a period of increasing speculative purchasing is typically followed by one of speculative selling in which the price falls significantly, in extreme cases this may lead to crashes.

It is a controversial point whether the presence of speculators increases or decreases the short-term volatility in a market. Their provision of capital and information may help stabilize prices closer to their true values. On the other hand, crowd behavior and positive feedback loops in market participants may also increase volatility at times.

It's good to see the dillusion in finance is also carried over to the disillusion about the environmental catastrophe we face.

So tell me General_Jack_Ripper - in a finite world (which is the Earth) why does your logic tell you that the resources within it are infinite?

....and that includes clean air.

There is no financial crisis
There is no environmental crisis

- Keep repeating it forever and eventually it must come true.

4. At 1:38pm on 16 Dec 2009, Ben wrote:

Crucially, the theoretical tax revenue that would be generated from the tax is based on the assumption that volumes would not drop after the imposition of such a tax. (.........) there would be lost revenue to the taxpayer that would otherwise have been generated from the profits of the trading community

---

So the taxpayer (ie. the economy as a whole) will lose out because they are not getting back a percentage of the profits of the trading community [extracted from the economy as a whole]?

By the same token, would you advise somebody to make a useless purchase, just because it lowers their tax bill at the end of the year?

As a non-trading member of society, given the option, the Tobin tax seems the better option thanks.

GORDON, I THINK THIS TOBIN TAX IS THE LAST THING WE NEED TO BOLSTER OUR AILING FSI....WE ARE SKINT AND ANY PENNIES IN THE COFFERS SHOULD BE KEPT IN THE TREASURY....THE TIMIMG FOR THIS TOBIN TAX SUCKS.....WE NEED OUR OWN REVENUE , AND THIS IS SENDING OUT EXACTLY THE WRONG MESSAGE AT THE WRONG TIME TO THE INDUSTRY......UNLESS IT'S LIP SERVICE AT A PALTRY RATE AND UNIVERSALLY COMPULSORY.
Why not have a voluntary levy for cyclists and bus passengers to pay for what they care about? Or do they only care about it when the rest of us are paying for this nonsense!

#17
There are plenty of examples of liquid markets where speculation is rife. Can you tell me how much oil is produced by the world and how many barrels are traded on futures markets. The problem with speculation is that this creates an artifical market price and genuine consumers have to pay more than the genuine producers want.

merrill Lynch purchased an complete tanker worth of oil and stored it docked it offshore until prices increased and profit made. This is market distortion as Merrill never had any requirement for the oil. The only way of erradicating these false markets are to force the speculators to take physical delivery of the products they are speculating in which will increase their costs significantly and dissuade them from participating in the first instance.

6. At 1:41pm on 16 Dec 2009, gac wrote:

"I would gladly pay extra tax to better protect our troops, but not on this overheated Carbon emission rot."

....protect them from what? the war we started?

It seems you pick and choose what you want to believe from Government to suit your own self-interests.
You don't believe the Carbon emission argument but you believe we're under attack from terrorists?

The evidence for both is about the same.

#19

Carbon issue question for you;-

Where did we, in this finite world of ours invent, the ability to create carbon? All that is consumed/burned is carbon nuetral.

Perhaps the bigger question should be how much will all this cost us? I can see our relatives looking back in a couple of hundred years saying "What a load of idiots, see what they did trying to prevent the planet from heating a couple of degrees". Akin to the retrospective stupidity that we place on people who thought that the world was flat.

Robert,

Your article title this morning is 'Can banks save the planet?'

'If they cannae save themselves then how can they save anything else?' immediately appeared in my mind?

I can't imagine there are many high-flying bankers who understand what a balanced ecosystem is so how would they figure out where to start.

A transaction tax falls on everyone trying to invest for their future. Our pensions and investments will get a double whammy from new taxes (buy AND sell) and wider spreads because of decreased liquidity. If a fund manager closes a trade because it is unprofitable we will have to pay a tax on top of the loss loss. We all end up poorer. Why should we pay for the banks non regulated trading? Make the banks pay by taxing them. Stop a repeat scenario through regulation.

But if this is to fund climate change, it's scandalous. Again let the tax penalty fall on those who pollute the air, not those trying to save for their future.

My personal view on speculation - for every hedger there is a speculator..the two go hand in hand. The hedger willingly offloads risk, the speculator willingly accepts it.

The speculator should face the consequences when they make a bad decision. Speculators in the form of traders accept this risk 100%, unless you are talking about traders at banking institutions...

The recent crisis was largely caused by individuals at banks that took risks without any consequences for them or for their firm. Sure, they might lose their job if they were wrong but the upside was being paid large bonuses. The management at banks accepted these risks because they ignored the risks! They were quite right in thinking that their firms would be perceived as 'too big too fail', and they were indeed bailed out at a cost of the taxpayer when events panned out for the worse.

But please note 'speculator' does NOT equal 'banker'. Speculators and traders outside of banking had nothing to do with the crisis, so why should they punished for the mistakes of bankers, mortgage lenders, regulators and governments?

They shouldn't as they pose no systemic risk, only to themselves personally.

7. At 1:41pm on 16 Dec 2009, Ben

...that all relies on the premise that the speculators are taking and understanding the risk involved.

However when you sit on enough wealth to be able to manipulate the scarcity - thereby increasing their ability to extract more wealth from those who need to purchase (unlike the speculators who actually have no need).

The regulation of harvests is one thing - and all your examples are farming / produce based - so how does the risk manifest itself when you are taking up a speculatory position on a financial derivative?

Secondly the speculator always underestimates his risk because ultimately he can only 'go bust' - by making the wrong bets - their losses are capped at 'everything they own' - and are not limitless as they should be.

All derivatives do is simply create an insurance that cannot be fully honoured.
The difference between this and traditional insurance is that it is highly unlikely all the disasters you plan for (Hurricanes, Tornados, floods etc) will occur at the same time.
....however in the world of finance this is not the case - and in fact the tendency is for exactly the opposite.

Oh how the boy plays who plays with guns - not really understanding how they work - is likely to blow his own head off.

2 General_Jack_Ripper
Oh, give it a rest - good do some decent reading.

11. virtualsilverlady

I don't often agree with you, but today I do.
Well said and thank you.

The only way to ensure absolute efficiency and total reduction of waste is through total equality.

People who work hard for every penny they earn - do not waste. Those who live off other's labour - do waste.

Even through the generations you can see this happening, which is why my Father routinely ate giblets and I have never done so.

There are many levels of inequality, inequality within the UK and inequality of the UK amongst other nations - all of them contribute to the waste we see every day.

How can anyone truly appreciate the 'worth' of something when the 'price' of it is so far removed from it's value?
......and doesn't that distance ensure the undervalued item is prone to wastage?

"Can banks save the planet? "

I think what Mr Peston means is:

"We're established that banks are socially useless - maybe they could save the planet and demonstrate their worth".

Sadly not - the process of usuary is for self interest and personal gain - these are not traits of someone who is able to recognise their responsibilities as a 'human being on planet Earth' - I mean how can they when they can't even grasp the concept of their responsibilites as a 'citizen of the UK Economy' - a much simpler responsibility which is much closer to home!

#20 ...By the same token, would you advise somebody to make a useless purchase, just because it lowers their tax bill at the end of the year?...

my reply - it would only make sense to make a 'useless purchase' to reduce taxes if taxes were above 100%...perhaps Gordon has that in mind too!

My central points regarding the amount of tax revenue that would be generated is (1) revenues generated would be 70-95% less than the claimed amount because of the resulting fall in financial transaction volumes (2) existing tax revenues collected would separately fall as a result of a reduced financial sector...whilst the UK Government is running large fiscal deficits any shortfall here would have to be funded by higher taxes or lower government spending.

#13
> You (#7) fail to mention that in a properly functioning market, speculation
> is not required. The buy and sell prices that you mention are a misnomer for
> 3rd party profit. The farmers and butchers would agree a price (this being
> both the buy and sell price) that was mutually agreeable without some
> spiv taking a cut.

Computers don't need to eat, so there's no reason for a difference between
buy and sell prices. In a short period, the Internet will see to it that
the buy and sell price of "things" merge together. The poor wiseguys and spivs
will have to get a proper job (sob...)

So, we have tens of thousands of bankers round the world, trading $700 trillion of OTC derivative transactions, most of which apparantly contribute absolutely NO REAL ADDED VALUE to the world !!
Bankers win & everybody else loses.
When you watch what happens in a trading room, this does not come as a big surprise . The term Smoke and Mirrors springs to mind .
If there is no REAL added value, then there will be no loss to the world if it all disappears .. .
So, the answer is very obvious :-
a) tax it to extinction
b) force these people to find more useful employment,
with some REAL ADDED VALUE .

No. 23 - writingsonthewall.

Lot of assumptions from you there bro!

I do believe that climate change is happening but not that man-made CO2 is the main rather than a contributory factor. As a climate researcher I am allowed that view. I am also allowed to agree with those pro carbon defenders who state that even if we became carbon neutral today then it would be hundreds of years before the full benefit would be experienced.

I do not think we are under attack from terrorists but our troops are involved in a war whatever I do or do not believe and whether we started it or not, and they should have our entire support - except yours apparently.

The only one picking and choosing is you by bending my post to suit some warped concept of your own.

You need to stop playing with your own guns!

17. At 2:19pm on 16 Dec 2009, GordonThought wrote:

"Side-effects should be considered, but rational individuals (and that includes producers and consumers) only take part in a market transaction when it suits them"

So you only buy food when the market conditions suit you then (and not when you're hungry)?
...and you only buy medicine when the market suits you (and not when your sick)
....and you only buy clothing when the market suits you (and not when you're cold)?
....and you only pay your water bill (for clean drinkable water) when the market suits you (and not when you're thirsty)?


....or are you simply an irrational market participant who is promptly ignored by Economists as you simply do not exist in their world?

I find the defence of market Economics totally bizarre and detached from the real world.

More arrant garbage. Understand this: If anyone had any interest in saving the planet would they really have initiated a cash for clunkers program?

Why would the government and the media be constantly urging people to buy more things that they don´t need?

How are banks going to save the planet? Only the insane could possibly consider such an option.

What is the deal with any kind of tax on banks? Why, oh look it´s what is known as an entrance fee in order to allow them to create and market a whole new and mammoth class of derivatives based on something called cap and trade. The same people that were responsible for the original explosion in derivates are now working on this new whizzo idea.

No-one cares about the planet, they care about money.

The planet has been around a long time. It will take care of itself, although it may not tolerate people for that much longer.

Can banks save the planet? Not by contributing to green investments through taxation, no! But I think they can save the planet by accident. After the very near collapse of the banks in 2008 emissions fell dramatically and stayed much lower for months. It's the world's capitalist economy that is costing the earth, so when capitalism hiccoughs the planet breathes more easily. So maybe we could work together to bring capitalism down a peg or two by a collective mass action that would recreate and make permanent a global banking collapse. In this way the banks might be seen by our children and grandchildren as having had an important role in saving the planet.

Charlie

18. At 2:22pm on 16 Dec 2009, Ben wrote:

"#9 to answer your question - I am an independent trader working for myself, but unlike the large banks that were bailed out by the Government I did not cause the financial crisis"

....but how did you make your money Ben? Didn't you wonder where your profits came from even though you did not produce a single item of value?

Did you not consider that you are speculating into the future and that the 'Any losses from bad decisions are 100% mine' - may not be enough to fulfil the people you owe should you go bust?

I mean the losses RBS suffered were '100% theirs' - until they were unable to pay them. Luckily the Government stepped in or there would have been an awful lot of creditors out there left out of pocket - leading to their own default.

I mean do inform us Ben, if you made a bad decision and went short VW last year then you could have ended up with 'unlimited losses' - now how do you start paying those back?

.....or do you just default and make it someone else's problem?

Consequences my dear, consequences.

#34 I don't think computer trading systems would avoid this tax! So argument that financial spreads would widen for everyone purely as a result of a Tobin Tax is still valid.

Hmm, how many times can a Mortgage backed Bond be sold for a fee, before all original value has gone in fees.

And of more interest to the ordinary person, why is there no enquiry into the state of the Private Pensions industry ?

People are more interested in why their retirement savings are now worthless, than in Bankers whining that their excessive and unearned bonuses are under a slight threat !

I still say, the equity in the Banks should be rebuilt (benefiting the Pension Funds and Gov't) before any bonuses are paid !

These staff mostly were there when the Banks went so badly wrong and took part in the operations that ended up undermining them.

The idea of Banks selling on their Mortgages or buying other Banks Mortgages or agencies is flawed (as demonstrated so well by the subprime crisis).

The purchaser will never be entirely sure of the quality of the package of loans they have bought.

If Banks wish to raise funds they can issue Bonds secured on the assets of the Bank rather than on specific loans.

This keeps the responsibility for the lending with the lender who must be more diligent and careful in their operations as a result.

Simple stuff, but it doesn't involve artificially created bonuses.

24. At 2:42pm on 16 Dec 2009, mcmullank wrote:

"Where did we, in this finite world of ours invent, the ability to create carbon? All that is consumed/burned is carbon nuetral."

Oh dear - don't know the difference between Carbon and Carbon Dioxide?

One is a solid and lives in the ground and does not create a greenhouse effect in our atmosphere - the other one does.

Take solid carbon (like coal) and burn it (oxidise it) and hey presto you have created a gas (CarbonDiOxide), if if it's burnt under certain conditions we get the poisonus Carbon Monoxide (from cars)

You have a good understanding of Economics - but not so good with the Chemistry - never mind, Chemistry wizards don't get a fraction of the pay financial wizards award themselves - so I guess in our 'reality' you chose well my friend.

Robert

its not about saving the PLANET. This will survive.
Its about preventing social and economic upheaval on an unprecedented scale such that the current economic crisis, recent terrorism levels, and suffering in the boxing day tsunami will seem like the good times.

Were significant portions of the icecaps etc to melt a sea rise of 30-60m will wipe out vast tracts of inhabited land and a fair part of food supply.

Nobody knows if the remaining land will be able to support the displaced 600m+ people. Chaning unproductive land to productive will not happen at the same rate as land loss.

I certainly don't think carbon trading will help. It is a smokescreen

#13
> You fail to mention that in a properly functioning market, speculation
> is not required. The buy and sell prices that you mention are a misnomer
> for 3rd party profit. The farmers and butchers would agree a price (this > being both the buy and sell price) that was mutually agreeable without
> some spiv taking a cut.

Perhaps in an 'ideal world' there would be no spreads to pay on ANY transaction, whether the purchase of a house, car, financial transaction...wipe out estate agents, car dealers...is that what you are getting at?

But given that this is unrealistic for the time being perhaps the next best alternative for the consumer is paying the smallest possible spreads. The internet is naturally driving down such costs for everyone...only the most efficient economic agents that can remain profitable with super tight spreads survive...

And yet the Tobin Tax will eliminate any benefits from the internet by forcing spreads UP just to cover the costs of the tax! What's next? Internet transactions or indeed every economic transaction? More power to the Government, less power to the consumer and taxpayer that wants to achieve a semblance of control in their lives without being dependent on Gordon Brown and the nanny state.

You ask "Can banks save the planet?"

What a stupid question! They don't have the slightest interest in saving the cheque which is used by millions of people every day and which is essential for small one man businesses, charities, schools and clubs etc the length and breath of our country. It is these millions of people who own the bl***dy banks and they "repay" us for saving them by saying they are phasing out a service which is of continuing use to users.

#27 Ben wrote:
"Speculators and traders outside of banking had nothing to do with the crisis, so why should they punished for the mistakes of bankers, mortgage lenders, regulators and governments?"

Even if I agree with your point that speculators have nothing to do with the current crisis, I still don't see the benefit a speculator produces (this is actually a good way to define speculation: it is good for the speculator only). And don't tell me that the speculator balances out the nasty action of the hedge fund. This is pure speculation in the first place, so if the first is banned, the second is not needed.

We need to keep greed under control and if this means putting out of business guys like you I'm sorry. I'd rather see the type of business you do go than seeing all the people unemployed today through no fault of their own.

38:
"No-one cares about the planet, they care about money."

Plenty of people do care, unfortunately they aren't the ones controlling the creation of ,and use of, authority (money).

38:
"The planet has been around a long time. It will take care of itself, although it may not tolerate people for that much longer."

Thats tempting Fate (or the Gods, or the Force,or insert preferred deity here).

There are precedents in antiquity for near extinction events involving Humanity and precursors to Humanity.

Even the Bible mentions one (Noah, Ark etc.) And the Scientists have their Ice Ages, Meteor strikes, plagues etc.

Quite frankly what would be a suitable punishment for a Species that exterminates other species (not just one or two but tens of thousands of other species) with no justification ?

I suppose there will come a point when the clever monkey will cease to be interesting, and the I wonder what they'll do next question will no longer be sufficient.

Ho hum, stay interesting !

WOTW - "Those who live off other's labour - do waste."

Thank you for backing me on small government and low taxation.

GAC "I do not think we are under attack from terrorists but our troops are involved in a war whatever I do or do not believe and whether we started it or not, and they should have our entire support - except yours apparently."

A totally unjust response to WOTW just because his post 23 owned you. Proper support for the troops would be to campaign for them to come home, not send them better stuff.

Back to the blog - more tax on the way whether it is based on evil bankers or the spurious climate change scam.

Can socialism be stopped or does it have too much momentum?

Will I be able to write freely in 10 years time?

43. At 3:36pm on 16 Dec 2009, writingsonthewall wrote:

Thank you for that analysis - I pondered that statement about carbon neutral just too hard - failed to recognise it resulted from someone not being too familiar with 1st year science at secondary school!

What we are seeing here is a typical ecological imbalance. Mass expansion of a particular species. Diminishing resources to sustain that population result. Next comes a population crash leaving behind a wrecked habitat that may or may not recover. That is, too many people using too much food, wood etc, everything runs out leaving a baren landscape impacting other species, and then....
It is an ecological bubble or sorts, liberally seasoned with natural variations in the earth ecosystem.

This is taught (or was in my day) in high school science.

The best thing the bankers can do is crash, go home, sit down, be quiet, and stay there while we all have an enforeced rest from using the earth's resources and just maybe the global ecosystem will recover.

Is that in the short-term interest of the financial world? No.
Can the financial population take the long-term view (along with the politicians)? Can the rest of us?
I wouldn't gamble a blade of grass on that!

27. At 2:47pm on 16 Dec 2009, Ben wrote:

"The speculator should face the consequences when they make a bad decision. "

....so how do you see the consequences of 125% mortgages which were 'speculatively' issued by Northern Rock panning out?

The potential losses on derivatives are limitless (you should know that) - so how do you settle an infinite loss?
(once you tell me then I shall be master of the world with that knowledge)

"But please note 'speculator' does NOT equal 'banker'. Speculators and traders outside of banking had nothing to do with the crisis, so why should they punished for the mistakes of bankers, mortgage lenders, regulators and governments?"

What do you think a CDO is?
It's an instrument where the buyer (a bank) purchases a mixture of debts in the hope that the majority of them will get paid off - speculating on the assessment of the ratings agency and the collection of debts within the package.

What do you think a CDS is?
It's an instrument where people speculate about the ability of an institution to pay off it's debts - and insuring the purchaser against that institution defaulting - without requiring any underlying.

As with all geared instruments - they cost a little to purchase but the losses are limitless.

For example, there isn't enough "money in the whole world" to pay of all the outstanding CDS's should there be a 'world default'

...and before you talk about 'net value' unless all the defaults occur at the same time and all the payments of CDS's occur simultaneously then there will be troughs as one speculator pays out but does not receieve (due to the seller going bust) - which causes them to default themselves and trigger more CDS payouts.

Net value of CDS derivatives is another example of the complete disconnect between the financial view of the world and real life. (because financial wizards all assume these positions will 'net off' to zero in the event of mass default)

46. At 3:45pm on 16 Dec 2009, busby2

Good point; I say this again, if ever a business needed to be state controlled, it's the banking sector.

They have raped this country, and the only way to stop it happening again, is have a state controlled bank.

#35 John Lloyd:

> If there is no REAL added value, then there will be no loss to the world
> if it all disappears .. .

You could say the same thing about money itself. I expect that somehow,
somewhere, under all the jargon, some people may actually require
some of this twisted stuff.

Most of the work can be done remotely by computer, so it's an ideal
candidate for farming out to unemployment blackspots, such as South
Wales and certain parts of Scotland.

Train the unemployed to work out percentages etc., give them PCs and a tax
break. Let them do all that boring, tedious work - they need the money.

"#40...but how did you make your money Ben? Didn't you wonder where your profits came from even though you did not produce a single item of value?"

Well, like any other economic agent I attempt to source goods cheaply so that I am able to deliver them to a buyer at slightly higher prices, just as an importer of cheap materials from China satisifes attempts to satisfy demand in his/her home market at a price that is mutually beneficial to both parties. In my case, I specifically source cheaper financial products according to different prices in different timezones - this means purchasing during the Asian time zone when UK traders are asleep and reducing my inventory during UK hours. If UK traders were willing or able to give up their sleep during the Asian time zone they would be able to source the cheaper goods, in this case financial derivatives.

It is no different from any other capitalistic endeavour and brings efficiency gains for everyone. Where there are market inefficiences those that work hardest and smartest to discover them will prosper and the consumer benefits in the form of tighter spreads and greater competition. MY competition is the banks that received taxpayer assistance when they made bad decisions are were bailed out. If you eliminated the small trader/investor there would be more power in the hands of the banking sector and less competition in financial services.

"#40...Did you not consider that you are speculating into the future and that the 'Any losses from bad decisions are 100% mine' - may not be enough to fulfil the people you owe should you go bust?"

I minimize risk by only risking 1% of my capital on each trade. Personally I don't engage in short selling because as you say the risks are unlimited and I am not comfortable with this. In reality the financial broker would take the hit from his client if an investor/trader could not settle debts so to prevent this they ensure that clients deposit sufficient up front funds in their account to pay for any unforeseen market events. The required funds ('margin') as stipulated by financial exchanges are adjusted on a daily basis to account for price changes. So the speculator in such 'exchange traded' derivatives poses no risk to the system at all.

Systemic risks ARE created by the 'off-exchange' (or OTC) derivative transactions BETWEEN BANKS. But most specualators or traders that work independently of the banking sector do no trade such 'off-exchange' products, they would not be able to because of the credit risks involved.

Contrary to the public image of a speculator/trader I do my utmost to reduce risk as much as possible on any individual trade. If I do not this I will quickly cease to exist as a trader! Indeed anyone who gambles or takes undue risks with their own capital is quickly found out in the marketplace. It is only those that are bailed out by the Government, deemed 'too big to fail' hence adopting adopt the 'head I win, tails you lose' philosophy that create the systemic risks.

Reckless greed and gambling created the housing bubble and financial crisis, but not financial speculators, unless you are including 'property speculators' in the discussion. There needs to be better regulation of 'off-exchange' derivatives, and possibly a separation of commercial banking activities from speculative trading activities. I am as angry as anyone at how Goldman Sachs and other investment banks were bailed out by the UK & US taxpayer...but an attack on speculators would be misguided and damaging to everyone as the result would be higher spreads and costs for all.

36. At 3:22pm on 16 Dec 2009, gac wrote:

"I do believe that climate change is happening but not that man-made CO2 is the main rather than a contributory factor."

...but you assume this contributory factor is not enough to be the straw that breaks the camels back though? - what do you base that assumption on?

"I am also allowed to agree with those pro carbon defenders who state that even if we became carbon neutral today then it would be hundreds of years before the full benefit would be experienced."

...so that means "It's too late anyway" - even if we are responsible for the problem - so the answer is that we should simply continue as before?

Do you apply this to your car when it starts to break down - i.e. drive it faster because it's already had it - it won't make any difference - based on teh assumption you can simply buy a new one - do you know where we can get a 'new planet' from?

"I do not think we are under attack from terrorists but our troops are involved in a war whatever I do or do not believe and whether we started it or not, and they should have our entire support - except yours apparently."

Ah - the old "if you don't support our illegal war then you are unpatriotic" line.
All soldiers volunteer in this country (we have no national service or compulsury draft), which makes it difficult to 'automatically support' the instruments of war (which is what soldiers are), especially when the ideals behind it are so suspect.
If we were genuinely under attack (as we were in 1939) then I would put on a backpack and join them - as it is this is a war where we are the oppressor and I cannot back anyone who participates under those ideals.

It does not mean I am not appalled at every life lost in this war, and that includes the hundreds of UK soldiers and the thousands, if not millions of innocent civilians killed whom are often forgotten by everyone because they are not seen as important.

I find it fascinating that in your original post you stated that you would rather we didn't spend 1.5Billion on saving the planet but invested more in destroying large areas of it through our war.

I don't believe any self respecting 'climate researcher' would take that position - unless you work for one of those large oil companies.....

38. At 3:25pm on 16 Dec 2009, armagediontimes wrote:

"More arrant garbage. Understand this: If anyone had any interest in saving the planet would they really have initiated a cash for clunkers program?"

100% correct

"Why would the government and the media be constantly urging people to buy more things that they don´t need?"

100% correct again

"How are banks going to save the planet? Only the insane could possibly consider such an option."

Insane - or the corrupted self interested media lap dogs.

"No-one cares about the planet, they care about money."

I couldn't have put it better myself.

"The planet has been around a long time. It will take care of itself, although it may not tolerate people for that much longer. "

Again true - I have been talking about 'saving the planet' - but you're right, the planet will remain (even if it's burnt and desolate) - it's we humans that will be removed from the solar system.

UPF advisory note 14

The following is an advisory note issued by the United Peoples Front

Climate Change & CO2 emissions tax.

The UPF has noted that the UN's Intergovernmental Panel on Climate Change (IPCC) is a body of people devoted the premise that climate change caused by humans exists. And to that end they have consistently falsified data to support their claim. And that President Van Rompuy wants the EU to have a common emissions taxation policy, that will help fund the harmonisation of Europe.

Now as our older members will likely verify, the climate has indeed been improving in this country for around 20,000 years and glacial ice that was once such a hazard to them, has now vanished.

However the summers of northerly EU members are often below par in comparison with those of the southerly EU members.

And given that equality is promoted by our new EU President, we do not advise our members to actively engage in the business of promoting a CO2 emissions tax, as such may be seen by the northerly parts of the EU to be profoundly against equality of summer holidays.

After all why should countries located closer to the equator be at an advantage in attracting tourists to those that are not.

Now whilst there have been somewhat radical calls to shift the world on its axis every four years and thereby distribute good summer holiday weather more evenly across the EU, we at the UPF do not advise our members to support such an action.

For by shifting the world on its axis every four years may prove confusing to older members who are used to it staying put.

Mr Peston wrote: The point being that not all financial innovation is either harmful, fatuous or a gull.

No, but 90% of them are.

49. At 4:00pm on 16 Dec 2009, truths33k3r wrote:

"WOTW - "Those who live off other's labour - do waste."

Thank you for backing me on small government and low taxation."

Alas, the waste you choose to see in the public sector is miniscule compared to the extraction of value through labour surplus.

I mean all the public sector waste added up for 100 years could not generate the massive waste which the private sector distributes back to us as a consumer of a taxpayer.

I mean technically the next Government will be very, very small - but our taxes won't decline to match it.

It would be nice if the theory of small Government worked, but what are you going to do as a businessman when there is no police force and in order to protect your shop you are forced to emply 'the only security firm in town' and they want twice your annual earnings to provide security?
There will be no Government mediator to run to then - it will be pay up or suffer.

You are still fooled by the appearance of profits as being an indicator of efficiency (which is why the private sector is so gloriously promoted) - but alas, you have not discovered the source of this profit and therefore are mistaken.

Do not mix the state Capitalism we see with the 'public sector' - by definition the public sector is 'owned by the public' - but we don't own it - we just pay for it!

Maybe by the time we get out of recession you will agree with me - although that may be a very long time yet ;-)

OK,
So if: I believe that boom and bust has been eradicated, and if I believe there were weapons of mass destruction in Iraq, and that Dr David Kelly committed suicide.
And finally if I believe in climate change caused by humans.

Now if I believe in all these things, would you, the government, just leave me in peace, and not launch any more new initiatives or tax rises, whilst I endeavour to get my family through this recession?

Do you think you could manage that?

Or will there be something else I will be required to believe in? and subsequently taxed on.

#51 perhaps the distinction between exchange traded derivatives and off-exchange derivatives traded between banks needs to be better understood.

Exchange traded derivatives (which are the only products I trade or speculate in) are marked-to-market on a daily basis. Commodity exchanges have existed for hundreds of years and the products traded pose ZERO systemic risk. Time is the true test that exchange traded derivatives work and bring massive benefits to the economy. No taxpayer involvement required, most financial exchanges have very long histories without any support from the taxpayer.

CDOs and CDSs on the other hand are off-exchange derivatives. Here there is a case for greater regulation.

With respect any regulation or ideas for a blanket Tobin Tax on 'financial transactions' should at least make an attempt to distinguish between the two types.

With regard to 'property speculation'...this demonstrates that some speculation does indeed have harmful effects...but then again there is already a transaction tax on property transactions in the form of stamp duty and that does nothing to eliminate speculative activity, it simply raises the costs to buyer and seller.

In a capitalist economy you NEED speculative activity and risk taking by individuals and I think we can agree that this is desirable if it does not adversely impact others (i.e. no bailout required)

52. At 4:14pm on 16 Dec 2009, Dempster wrote:

"They have raped this country, and the only way to stop it happening again, is have a state controlled bank. "


Ah - but this is what the Capitalists fear most, for once we all recognise the best place for the lending function is within the state - then the next questions will be what about the car, steel, mail delivery etc. industries.

There will be only one conclusion.

However by sufficiently mis-managing all the current state owned facets the Government can ensure that they maintain the fear that drives most people away from this idea.

My old man used to say that I would do a household chore so badly that I would never be asked to do it again - therefore getting out of chores.

Whilst this was not true (I was just a useless and laxy teenager) - it does seem this is the tactic the Government employs.

What are the chances of the bankers providing an efficient and economic market in carbon credits that will provide real added value ?
Based on their track record in financial markets, the answer must be very little chance. As various people have pointed out, these are people who make a very lucrative living out of gulling the other 99.9% of people on the planet.
What will happen if they control an enormous market in carbon credits. Yes, they will make a very very lucrative living out of this, but there will probably be very LITTLE REAL VALUE ADDED in terms of the beneficial effect on the climate. In 20 years time someone will do some research into how much real difference the carbon credit system has made and the answer will be " too small to be measured ". Meanwhile, the banks will be taking home enormous bonuses based on the fact that they have traded trillions of dollars of "supposedly useful" carbon credits.
The probability is that this idea is all a con dreamt up by . . . the banks. ( Particularly Goldman ) Yet another gull !!

banks cannot save the planet by returning to the misdeeds of the recent past they can no longer be relied upon to dobanking properly
saving the world is even harder

62. At 4:45pm on 16 Dec 2009, writingsonthewall wrote:
'then the next questions will be what about the car, steel, mail delivery etc. industries'

Personally I'd leave them in the private sector, my mate had a Morris Marina and I had a Mk1 Escort. Wouldn't have swapped him.

54. At 4:23pm on 16 Dec 2009, Ben wrote:

"Well, like any other economic agent I attempt to source goods cheaply so that I am able to deliver them to a buyer at slightly higher prices, just as an importer of cheap materials from China satisifes attempts to satisfy demand in his/her home market at a price that is mutually beneficial to both parties."

...and how does that process 'add value' to the item?

....and when you say beneficial to both parties - I presume you're leaving out the Chinese employee who has just spent a day making that commodity for less than a loaf of bread - the source of the value you have shared with the other middle men. The sacrafice (or more accurately slavery) of the Chinese employee is where your profit comes from.

You explanation of time zones is mis-leading - the root of the profit is because you are taking profit from exploited Eastern labour - just as the fatory owner who switches his production from Belarus to Bejjing.

Your explanation of margin accounts is also loopy - what happens when you cannot reach all your margin payments? - the same as I described. Having a variation margin makes no difference to the end result.

I mean this is bizarre:
"So the speculator in such 'exchange traded' derivatives poses no risk to the system at all."

????? - I don't even know where to start with that illogical statement. You said that a speculator takes on the risk a hedger is offering - and yet there is no risk? - just because the hedger is unknown to the speculator (because it's exchange traded) does not mean the risk vanishes into a puff of smoke!!

If you loose your 1% of capital - do you simply stop trading forever? or actually do you start in the next percentage? - or maybe you 'reset' your percentages so you can maintain your 'golden rule' in some bizarre mathematical parallell universe.

I find it astonishing that you speculate but have never understood the process. Your understanding of risk is textbook Economic risk and does not interact with the real world.

This is where it goes wrong folks - you think you don't understand finance - well they don't understand it themselves

Having just re-read this blog entry I wonder if Mr Peston is starting to understand the reality of the situation. Maybe he has been reading these comments after all.

"Now it's not ludicrous to conclude that a big chunk of those transactions were either designed to transfer wealth ... from naïve investors to clever bankers, or to avoid tax, or to manufacture fees out of products with no ... purpose.

".... in a way that may actually have damaged the interests of genuine wealth creating companies in the real economy"

Maybe the preachings of WOTW and others are getting through.

Maybe he can report on the TV now (in words of one syllable) on the parlous state of the global economy.

Maybe he can think about what radical policies are needed and he can liase with the political experts at the BBC and discuss reasons why the current political scene is not geared up for doing anything radical.

Maybe the license-fee-payers can be given the low-down on how the majority have been slowly conned out of their wealth by the immoral dilution of money.

Maybe enough people will become aware enough of the issues to build and support a political force to oust the current puppets and put things right.

Maybe, but I doubt it.

61. At 4:45pm on 16 Dec 2009, Ben wrote:

"Exchange traded derivatives (which are the only products I trade or speculate in) are marked-to-market on a daily basis. Commodity exchanges have existed for hundreds of years and the products traded pose ZERO systemic risk."

So when you discover that the oil producing countries have been lying about their reserves and that they cannot fulfil all the oil futures in the system - where is that in your ZERO systemic risk analysis?

...or when speculators ensure that the oil price is bouyed enough that stagflation occurs in these recession bitten western nations and as a result they default - is that not a systemic risk?

Systemic risk means a risk associated with the SYSTEM - that means the whole thing, not just your little section of it.

I can't go on - if the comodity traders do not understand the risks and where they come from then we are all truly doomed.

This is like watching children playing with loaded machine guns in a glass room and not being able to do anything about it.

Oh please God give me strength to get through this - if people suspected we are walking blind into a storm - then this is perfect evidence of that.

Re: 55 writingsonthewall - again

If the £1.5bn was to save the world you just may have a point, but it was for the Third World countries who are already in receipt of billions - if you do not understand what you read then do not knock it!

Your rant against the troops is not worthy of further comment.

You seem to be full of angst. Have you tried anger management?

It is somewhat ironic, that the so called experts of Capitalism, the City Traders, have done more in the last three, four years, with deregulation and artificial bonus processes to destroy confidence in Shares and Equity investments.

These are the People who livelyhoods depend on other People believing in the worth of Shareownership, Private Pensions, Assurance policies etc.

They have,through utter greed,wiped out millions of small shareholders, ten of millions of Pension pots and have done more to justify the claims of Socialism than any Socialist ever did!

All because they believed they could get away with changing the Rules of the game, deregulating so they could dream up fantasy profits and bonuses to feed their insatiable greed.

Now of course, no one I know wants to touch shares.
No one sees any point in Private Pensions or annuities.

Perhaps people should be more Independent, then the Spivs will perhaps realise their Illusion is broken, no one is watching their Tricks anymore.

Things to do next year:
Learn Boat building and seamanship.

I'm not going to explain to the city where their profits come from anymore - if they don't understand and haven't bothered to find out by now then they clearly would rather sit in pig ignorance than actually 'think'.

Lets get back to the real world.

I was criticised for making predictions that have not come true recently - most importantly the one about the 'winter of discontent' which was coming.

Now I may have been slightly off with my timing (although it depends when you consider 'winter' to be in the UK) - but today I have counted the following recent strikes, or potential strikes which is evidence of this. Don't forget this is in a non-unionised, non-militant workforce - not like the days of the miners and dockworkers etc.

BA Cabin crew
Eurostar
Royal Mail (which will be back in the new year - rest assured)
East London buses
Leeds Binmen
Perennial Tube strikes
Christmas rail strikes
Ireland (the whole country will be on strike soon - starting with the police)
Fujitsu
Diageo
Regional bus strikes


...these are just in the UK - you want to see what France is up to (the home of strikes).

How much discontent do you need? or is it a case of what you cannot see cannot be happening?

70. At 5:16pm on 16 Dec 2009, supercalmdown wrote:

"It is somewhat ironic, that the so called experts of Capitalism, the City Traders, have done more in the last three, four years, with deregulation and artificial bonus processes to destroy confidence in Shares and Equity investments."

Not in the last year or so. If you'd invested at the right time, you'd have made a lot. Maybe not now, as shares are high-ish.

I think you will find that many of your "experts of capitalism" are fat and happy, and some of our pension funds have consequently recovered a bit of value this year.

The ironic bit is that a "Socialist" Labour party tried to speculate on a property and mortgage bubble, and lost all our money. It was socialist amateurs playing at capitalism that went wrong. It is socialist amateurs that are doubling-up their bets to recover our losses through QE. The financiers surely cannot believe their luck at coming up against punter-Gordon, the man who won't stock signing IOUs. Do you remember Nick Leeson?

If I were the head of the Basel Committee on Banking Supervision, the FSA/BoE/, The Fed, the policy-makers ( particularly Mr Brown) and political classes I would be absolutely delighted, Robert, that you take your bloggers down this road of discussion of financial transaction taxes. Why? Cos it diverts attention away from the mother of all public regulatory and supervisory failures. Read the Treasury Committee's July 2009 special report on banking supervision and regulation. It falls far short of a public inquiry but does its best to catalogue withering criticisms of public / governmental regulation. It says " By any measure the FSA has failed dreadfully in its supervision of the banking sector." It contains the gobsmacking recommendation that " The FSA should only permit banking activities that it understands, and it has confidence that the bank concerned understands." The FSA is criticised for a lack of self-resolve to stick to its guns in the face of criticism from the industry it supervises and the politicians who oversee it. They found that the Basel capital rules didnt work when they were needed and arguably made the situation worse by driving financial activity off-balance sheet.Get the picture!!

So, what I propose is a Fine ( not a tax) to be imposed on all those numpties who created and presided over this debacle.

Public inquiry please.

73. At 5:32pm on 16 Dec 2009, shireblogger wrote a great post. Well done!

#71 writingsonthewall. Ireland is not part of the UK. Imperialism is so last season didn´t you know.

On what basis do you claim that miners were militant? They saw that they were under a massive assault and took steps to defend themeselves as best they could. They lost - but at least they tried.

Let´s be clear: Miners saw they were under attack and tried to defend themselves. That enables you to label them militant. Today the mass of the population is under assault but are either too indroctinated to grasp that obvious fact or are too indolent to seek to do anything about it. How do you label them?

In answer to your question you need enough discontent to overthrow the ruling kleptocracy. Discontent should be like money printing - just keep leveraging it up without end.

That it will not happen provides all the answers you need.

The banks will look about, then determine where the money is to be made and then act in their own interests.

If in doing so they have to get somebody from the media to call black white then so be it. Put it down to expenses.

Robert, whilst I understand that you are the inventor of this credit crunch by your reporting, but could you find a new topic and put your career defining 'baby' to bed?

Its not that I think that there is a no longer a requirement for this, but it would seem from the posts that some of the 'sun' readers, armed with the opinions and views formed while reading said rag, have invaded your blog with their simplisitc 'ladybird book of' solutions.

If there is a need for a new tax, then how about a tax on more than one child?

The child tax thing is the only way to get the population down, and it matters not a jot what anyone says, the fastest way to reduce carbon emissions is to reduce the amount of poeple.

And if it also helps I propose a tax on religions that do not encourage population control.

Everything else is just paper over cracks

OMG Robert, don't go there.

All the Banks are really capable of doing is saving themselves, and stuff everybody else...

#71 writingsonthewall "...or when speculators ensure that the oil price is bouyed enough that stagflation occurs in these recession bitten western nations and as a result they default - is that not a systemic risk?"

Funny how speculators are blamed for oil prices rising AND share prices falling! The only speculators that would prosper in these situations are those that shorted oil at $140 and those that bought stocks earlier this year at the peak of the crisis. In other words profitable speculation would entail driving oil prices down and stock prices up, presumably both 'desirable objectives' for the central planner.

And remind me again what speculators have to do with climate change?

What a joke...You'd think that nobody had heard of the effects of 50 years of Communism. If you haven't, then take trip to modern day North Korea, it is possible to visit as a non journalist...

writingsonthewall...with great respect the rest of your comments don't merit a response, you are out of your depth in this discussion.

Would it not be smarter to directly tax bank profits? If they are using the evil banks as an excuses for generating money for "climate change" and that these banks should contribute only because of the bailouts, shouldn't they be the only ones to pay? A tax like this would cause serious problems, your banks fees would go up, ROI would drop and if you wanted to cash in a mutual fund etc. you would have to pay more fees, added to the money the tax payer has given already. Climate change has been a topic for a while now and politicians cant fulfill there promises of contributions to aid so they are placing a tax on the people. In the end it is the tax payer that will pay. Using bens example of the corn farmer, well if there isn't a speculator to take the risk then the farmer wont plant the crop and supply wont increase thus an increase in price. Even if you don't consider that example consider this, if the farmer and producer have to pay a fee on corn, wheat what ever, all other things equal, this tax or fee will be reflected in the price of goods. So to simply place a tax on all transaction is wrong thinking, banks should pay a percentage of profit based on its size, risk of investments and revenue, but since these market makers are needed, it wont happen.

#79 Ben Speaking, as you do, of people being out of their depth why don´t you consider:

(i) The average oil price from 1873 - 2002 was $17/bbl (in 2002 $´s).
(ii) Chris Cook, former Director of the IPE, contends that oil price markets are subject to manipulation and names 2 key players as being primarily responsible.

So, in order to be taken seriously all you need to do is explain (i) Why oil prices suddenly moved from their long term historical averages in 2003 and have yet to revert to trend, and; (ii) Provide some clue as to why your views (unsupported by any evidence at all) should be taken more seriously than the views of a former Director of the IPE.

#81 Hi armagediontimes
There are commodity shortages in general relative to the rising global demand...global wheat stocks at their lowest levels for thirty years, the emergence of China and India with billions of mouths that now want Western Style diets (=more meat)...for every 1kg of pork it take 8kg of corn to produce and yet corn, sugar and soyabeans are now being used to create ethanol to feed SUVS and not people!

Add in the fact that politicians and 'independent' central banks around the world now respond to every economic recession by cutting interest rates to near-zero levels and ramping up money supply via quantitative easing and you are creating massive inflationary pressures for asset prices, including commodity prices. The money printing by policymakers does make sense on one level because there has been an enormous buildup of private and public debt and creating some inflation is arguably the least painful way of eroding the debt burden for ordinary households in 'real' terms...

But you cannot avoid the inflationary consequences for non paper assets such as commodities...take a look at gold, for example...Gordon Brown as chancellor sold off a big chunk of UK's gold reserves at $255/ounce and the price is now $1140/ounce. So the rise in prices and increased volatility is not unique to oil, it is a secular trend that is a result of rising demand and the 'consume now, pay later' policies of both individuals and governments. 'Real' assets can only rise in $ terms in such a situation. After all, fiat paper money such as USD and GBP which are not backed by gold but are only worth something whilst there is confidence in the policy makers. What we really should be asking is 'Why have we allowed our politicians to devalue our currencies such as USD as GBP relative to real assets such as gold and oil to such a large extent?'. The 'evil speculator' is an easy target for the politician that wants to divert attention from their own policy failures!

Most of us cannot stockpile gold or oil, we hold our savings in paper money but these are worth less and less as more money is printed to pay off the debt. It is natural that there is increased investment demand for commodities, some like to describe this investment as 'speculation'.

What I would say specifically about the noughties rise in oil prices are a couple of things:-

(1) IF it was indeed possible for a single speculator to 'manipulate' oil prices from less than $10 up to $140 (something I don't believe for one moment but put my view aside for now), then is this not telling us that oil reserves are too low and that there needs to be a greater availability of oil to meet demand! Are we SO reliant on oil? What about alternative energy sources? I mean, if several oil producers can make a profit when price is above their cost of production ( a floor for price?) it is in their interests to sell their oil as price rises, acting as a restraining mechanism on price. A single speculator is not going to be able to 'take on' all of the oil producers. I love conspiracy stories but don't believe this one.

(2) And if oil does indeed rise a level that some claim is above its 'fundamental' value, whether caused by speculation or simply greater investment demand in real assets because people are fed up with holding crappy paper money like USD and GBP, or indeed the rise was caused by a genuine oil supply-demand imbalance (my view - we will see $200-$500 in next decade) that has positive effects. For one, the high oil price encourages more oil production and intensifies the search for alternative energy. If politicians had their way and were able to 'keep a lid' on oil prices this would only lead to underinvestment and future shortages that are far worse. You would probably not get the same impetus that you are now seeing to invest in alternative energy both from the Obama administration and the rest of the world.

The $140 price of oil really jarred the global community into realizing the extent of the demand-supply imbalance in oil and the lack of alternative energy sources...without that shock would you see the same impetus towards finding alternatives? I'm not sure, but I think environmentalists should see both the 'rationing' effect of higher oil prices on oil consumption, and the greater impetus behind searching for alternative energy sources as good things.

One of the factors behind the recent financial crisis was two decades of debt fuelled overconsumption...higher prices for any asset are simply a result of supply being unable to match demand, whether it be property or commodities...perhaps our economy and environment would be in better shape if there was greater reluctance by everyone to chase prices simply by taking out more credit card debt and loans to pay for instant gratification.

#82 re (ii) Chris Cook, former Director of the IPE...
I don't know this gentleman, but I'm always suspicious of people with offical titles! Often there is a vested interest involved. My vested interest has been declared.

I'm not sure what clues I'm supposed to provide to 'prove' that my views should be taken more seriously...I have credentials but I'm not sure this is the place for it, telling people I studied Maths at Cambridge University for example would put some people off...it's lose-lose whatever I claim about my background, it doesn't matter what your background is, and some will disbelieve whatever facts are presented and claim that a blue wall is red. I just hope the points I put across will resonate with some and make them question what Gordon Brown and the printed and spoken media claim to be 'the truth'. Some of it is valid, some is complete BS.

If we have something worthwhile left in the UK, it's our best universities and the scientific and engineering research that goes on in them and other institutions. Yet, though we can print money and tax everything, we don't have cash for science. God save Cambridge, Oxford, Imperial, et al, for sure the government will not.

https://news.bbc.co.uk/2/hi/science/nature/8417365.stm

Truly shocking in the context of bank and other bonuses.

#82 & #83 Ben. OK here is an article by Chris Cook

https://wwwatts.net/item/oildrum-oil-market-manipulation

Make of it what you will. However he is only one of a number of "system insiders" who have attempted to highlight dubious practices, only to have their careers destroyed by governments and their agencies who act to maintain the status quo and to suppress any hint of wrongdoing.

Far from politicians seeking to blame "evil speculators" they are completely in thrall to the financial oligarchy. They are two sides of the same coin. If this were not the case then politicians would have acted to rein in the excesses of the financial elite.

No one is claiming that the rise in oil from $10/bbl to $140/bbl was as a sole (or even major) consequence of speculation. But it remains necessary to explain the divergence from trend since 2003. Supply/demand analysis does not provide an explanation.

There are only limited attempts to develop alternative energy - mainly with regard to electricity production. Substantially nothing is being done with regard to transport. There is some talk about electric cars - but remember General Motors acquired an electric car patent some years ago and promptly sold the patent to Texaco. Why do you think they would do such a thing?

You are almost certainly correct when you point up the flight from fiat currencies into things of value such as oil. However this merely highlights the destruction of the currencies that is underway. This is the story that politicians are desperate to deflect atention from, and explains why they are happy to draw attention to the role of speculators. However that does not mean that there are no market irregularities, and it does not mean that politicians have not willingly conspired to facilitate systemic manipulation of markets.

To: armagediontimes @ 85

I don't believe that there is a conspiracy against alternative automotive energy sources. The fact is that gasolene and diesel are, even at much higher crude prices, extremely cheap and convenient. So much so that governments can collect a huge amount of tax on them and we still use them! There is a big reason reason why our government doesn't want efficient use of trasport fuels.

Electric vehicles are, until the miracle arrives, carrying the overhead of the electric power station.

My feeling is that ther may be a conspiracy to force money into hybrids rather than simpler solutions like improved internal combustion, better engine management and lighter vehicles.

#85 Thanks armagediontimes I will take a read of that paper...always good to hear alternative viewpoints.

Re: "However that does not mean that there are no market irregularities, and it does not mean that politicians have not willingly conspired to facilitate systemic manipulation of markets"
...
I agree completely...there are market irregularities and I would argue that it is the role of speculators to iron these out!

Indeed there is one conspiracy theory that I give some credence to...the Plunge Protection Team (or 'President's Working Group on Financial Markets')... this was officially created by Reagan in 1988 and according to some "attempts to manipulate U.S. stock markets in the event of a market crash by using government funds to buy stocks, or other instruments such as stock index futures—acts which are forbidden by US law". In August 2005, Sprott Asset Management released a report that argued that there is little doubt that the PPT intervened to protect the stock market.

The whole fiat paper financial system is one giant Ponzi scheme but we are safe in the knowledge that our policy makers have our collective interests at heart!

#86 WolfiePeters. Yeah that´s about right. It depends on how you define conspiracy. Everyone sees the same numbers and so they take the same decisions.

For established players electric cars make no sense. They don´t want them. GM patents something to keep other players out then sells the patent to Texaco. No reason for Texaco to develop any kind of car, it´s not their business and it takes the heat of GM. GM can be pretty certain that Texaco have no interest in electric cars - they don´t need to get it in writing.

The conspiracy (if there is one) is why not sell the patent to someone ho might try and develop an electric car. Why spend time on marketing and advertising telling everyone you want to bring down emissions when you clearly don´t.

If people don't start to understand and support the move to a Resource based Economy as envisioned by the Zeitgeist movement and the venus project there is little hope for us. Politicians don't know how to solve problems they simply aren't educated to understand how to solve the 'real' problems. They are only educated to understand a monetary system, making laws and making 'profit'. They cannot do anything good for the planet or us unless they can find a way to make money out of it and it doesn't work.

A major concern is CUI BONO ? from the whole Climate Change issue.
There are certainly a lot of self interested groups.
1) The Goverment Funded Scientists, whose jobs depend on publishing data that supports the belief that a) global temperatures are rising rapidly b) that Carbon emmissions are the reason.
( reading thru the hacked e-mails from the East Anglia CRU does make one stop and think that perhaps all scientists are not as honest as one might like to think )
2) Eveyone who invests in & works in the "green clean energy" industry.
3) All the bankers who believe there is enormous sums of money to be made from this issue.
The doubts that exist over the Climate Change data and hypotheses are a very good reason not to be rushed into this. For obvious reasons all the above have a large self interest in this issue becoming "big business" with trillions of dollars going into research, solutions and middle men ( bankers ).
The finance world has invested a large amount of money into the issue and is looking to get a big return.
So, a) CUI BONO ? and b) WHO ARE THE PEOPLE that is saying that the matter is so urgent that a global decision needs to made right now ? Could it be that THEY ARE ALL one and the same people . .
Then, what are they saying ? What's the spiel...?
"This is a lifesaving opportunity that expires in a few days time ."
"Must buy now. Once in a lifetime offer." "The world will end soon if we don't buy their view of the solutions today ."
Where have I heard this kind of patter before . . . ?
Do you really trust that kind of sales patter . . . ?
Sounds just like a broker trying to sell junk bonds . . . ?
No, I don't trust bankers on this issue. They certainly do not have a track record of being environmentally caring people.

ONLY BANKS CAN SAVE THE PLANET

https://www.bloomberg.com/news/marketsmag/mm_0110_story1.html

As JP Morgan says “You can’t have a successful climate policy without the heavy, heavy involvement of financial institutions.”

Just in case there is any doubt as to how money can save the planet, consider this:

https://www.infiniteunknown.net/2009/10/14/trafigura-scandal-papers-prove-ship-dumped-toxic-waste-in-ivory-coast/

The thought of a world in which Sarkhozy and Brown continue to control or even significantly influence global financial policy must fill everyone with dread. Clearly this CO2 nonsense is all bound up with a vision of a new left wing world order and a soviet style Europe.
The problem is that anything built on a lie will eventually fail and in this case hopefully sooner rather than later. Having created a phoney economy in carbon credits on the back of the CO2 scam, that economy will fail as sure as day follows night and with disastrous consequences. This whole MMGW fiasco has all the hall marks of another South Sea Bubble and many a politician who has fallen for it will have egg on his/her face within 5 years.

This comment was removed because the moderators found it broke the house rules. Explain.

Surely one way for the banks to save the planet would be persuade each of us to take an enormous joint mortgage out on the earth and rent it back to ourselves at a return that covers the mortgage and earns a profit as well. Result we make all make a fortune that we then use to pay off our debts, seemed to work last time.