Quebec Town Bans Wood Stoves

HAMPSTEAD, QUEBEC — The town of Hampstead, Quebec, a suburb of Montreal, has banned the installation of wood stoves and ordered all existing wood stoves to be removed within the next seven years. The new bylaw covers stoves, fireplace inserts, furnaces, and boilers that burn wood or wood pellets, all of which must be removed by November 3, 2015. Barbecues and indoor masonry fireplaces are exempt from the ban. The new Hampstead by-law states, “No person shall install a wood-burning appliance, in which wood or solid fuel is burned, and which discharges combustion products to the air, in or about any residential property.”

Hampstead Mayor William Steinberg explained that wood stoves “create an incredible amount of pollution.” The Hampstead by-law has sparked strong reactions. One letter to the editor of the Westmount Examiner suggested an alternate fuel: “Homeowners should burn all unnecessary by-laws in their fireplace.” Responding to critics, Mayor Steinberg noted, “We feel this is a reasonable measure to take at this point in time, because the smog that’s created by wood-burning appliances is a serious problem.”

The Wood Heat Policy Institute (WHPI), a group funded by wood stove manufacturers, released a statement criticizing the Hampstead wood-stove ban. “The by-law adopted by the council contains the most sweeping and uncompromising limits to the use of wood fuel of any jurisdiction in Canada,” noted the WHPI statement. “Quebec has among the highest household use of wood fuel in Canada, with almost 60 per cent of rural households burning some wood, according to a 2006 federal government survey. Twenty-two per cent of urban households in Quebec burn wood. Wood is not a trivial or marginal energy source, but is a mainstream heating fuel used by over one million Quebec homeowners.” In fact, the number of wood stoves installed in the province increased sharply after a 1998 ice storm that left many Quebec homeowners without power for weeks.

 <p>RESIDENTS ARE BURNING UP in the town of Hampstead, Quebec, which, has passed a law requiring all existing wood stoves to be removed within seven years. 22% of the residents of Quebec heat with wood.</p>

RESIDENTS ARE BURNING UP in the town of Hampstead, Quebec, which, has passed a law requiring all existing wood stoves to be removed within seven years. 22% of the residents of Quebec heat with wood.

Surrounding towns are in no hurry to emulate Hampstead’s example. Bob Benedetti, the mayor of Beaconsfield, Quebec, told a West Island Gazette reporter, “We’re not going to rush off and ban something we can’t enforce. There’s no question this stuff is unhealthy. All experts say particulate matter, especially on smog days, is bad. It ranks right up there with smoking. I agree and sympathize with the people who are affected by the smog caused by wood stoves but we can’t rush in. It has to be reasonable and easily enforceable.” See story here.

World Energy Use Projected to Grow 49 Percent Between 2007 and 2035

WASHINGTON, DC – World marketed energy consumption grows 49 percent between 2007 and 2035, driven by economic growth in the developing nations of the world, according to the Reference case projection from the International Energy Outlook 2010 (IEO2010 ) released today by the U.S. Energy Information Administration (EIA). “Renewables are the fastest-growing source of world energy supply, but fossil fuels are still set to meet more than three-fourths of total energy needs in 2035 assuming current policies are unchanged,” said EIA Administrator Richard Newell.

The global economic recession that began in 2007 and continued into 2009 has had a profound impact on near-term prospects for world energy demand. Total marketed energy consumption contracted by 1.2 percent in 2008 and by an estimated 2.2 percent in 2009, as manufacturing and consumer demand for goods and services declined (Figure 1 ). In the Reference case, as the economic situation improves, most nations are expected to return to the economic growth rates that were projected prior to the downturn. Total world energy use in the Reference case rises 49 percent, from 495 quadrillion British thermal units (Btu) in 2007 to 739 quadrillion Btu in 2035.

China and India are among the nations least impacted by the global recession, and they will continue to lead the world’s economic and energy demand growth into the future. In 2007, China and India together accounted for about 20 percent of total world energy consumption. With strong economic growth in both countries over the projection period, their combined energy use more than doubles by 2035, when they account for 30 percent of world energy use in the IEO2010 Reference case. In contrast, the projected U.S. share of world energy consumption falls from 21 percent in 2007 to about 16 percent in 2035.

Average world oil prices increased strongly from 2003 to mid-July 2008, then declined sharply over the rest of 2008. In 2009, oil prices again trended upward and this trend continues in the Reference case, with prices rising to $108 per barrel by 2020 (in real 2008 dollars) and $133 per barrel by 2035. Total liquid fuels consumption projected for 2035 is 28 percent or 24.5 million barrels per day higher than the 2007 level of 86.1 million barrels per day. Conventional oil supplies from the Organization of the Petroleum Exporting Countries (OPEC) contribute 11.5 million barrels per day to the total increase in world liquid fuels production, and conventional supplies from non-OPEC countries add another 4.8 million barrels per day. World production of unconventional resources (including biofuels, oil sands, extra-heavy oil, coal-to-liquids, and gas-to-liquids), which totaled 3.4 million barrels per day in 2007, increases nearly fourfold to 12.9 million barrels per day in 2035.

Other report highlights include:

  • From 2007 to 2035, total world energy consumption rises by an average annual 1.4 percent in the IEO2010 Reference case. Strong economic growth among the non-OECD (Organisation for Economic Cooperation and Development) nations drives the increase. Non-OECD energy use increases by 2.2 percent per year; in the OECD countries energy use grows by only 0.5 percent per year.
  • Petroleum and other liquid fuels remain the largest energy source worldwide through 2035, though projected higher oil prices erode their share of total energy use from 35 percent in 2007 to 30 percent in 2035.
  • World natural gas consumption increases 1.3 percent per year, from 108 trillion cubic feet in 2007 to 156 trillion cubic feet in 2035. Tight gas, shale gas, and coalbed methane supplies increase substantially in the IEO2010 Reference case-especially from the United States, but also from Canada and China.
  • In the absence of additional national policies and/or binding international agreements that would limit or reduce greenhouse gas emissions, world coal consumption is projected to increase from 132 quadrillion Btu in 2007 to 206 quadrillion Btu in 2035, at an average annual rate of 1.6 percent. China alone accounts for 78 percent of the total net increase in world coal use from 2007 to 2035.
  • World net electricity generation increases by 87 percent, from 18.8 trillion kilowatthours in 2007 to 35.2 trillion kilowatthours in 2035. Renewables are the fastest growing source of new electricity generation, increasing by 3.0 percent per year in the Reference case; followed by coal-fired generation, which increases by 2.3 percent per year.
  • In the IEO2010 Reference case, world industrial energy consumption grows 66 percent, from 184 quadrillion Btu in 2007 to 262 quadrillion Btu in 2035. The non-OECD economies account for about 95 percent of the world increase in industrial sector energy consumption in the Reference case.
  • Almost 20 percent of the world’s total delivered energy is used for transportation, most of it in the form of liquid fuels. The transportation share of world total liquids consumption increases from 53 percent in 2007 to 61 percent in 2035 in the IEO2010 Reference case, accounting for 87 percent of the total increase in world liquids consumption.
  • In the IEO2010 Reference case, energy-related carbon dioxide emissions rise from 29.7 billion metric tons in 2007 to 42.4 billion metric tons in 2035–an increase of 43 percent. Much of the increase in carbon dioxide emissions is projected to occur among the developing nations of the world, especially in Asia (Figure 2 ).

The IEO2010 Highlights can be found on EIA’s web site at:

Obama’s Model ‘Green’ Country? Denmark Evicts Citizens, Clear-Cuts Forests for Windmill Space

Following the embarrassment of having recommended Spain’s failed “green” programs, Obama switched to using Denmark as a model. Best out of five?

May 24, 2010

– by Christopher Horner

President Obama was caught flatfooted by the embarrassing truth about Spain’s “green economy” after he instructed us — on eight separate occasions — to “think about what’s happening in countries like Spain” as a model for a U.S. future. Spain, of course, is suffering an economic meltdown from enormous public debt incurred through programs like a mandated “green economy.”

But Obama also just implored Spain to drastically scale back or risk becoming Greece. A flip he immediately flopped, by pushing hard to enact the Kerry-Lieberman “path to insolvency” bill based on … Spain. (Cue Benny Hill theme.)

So, embarrassed — or perhaps shameless — Obama changed his pitch: “Think about what’s happening in countries like Denmark.”

Of course, the experience of Denmark — a country with a population half that of Manhattan’s, not exactly a useful energy model for our rather different economy and society — is no great shakes, either.

But it gets better.

In my new book — Power Grab: How Obama’s Green Policies Will Steal Your Freedom and Bankrupt America — I describe the absurdity of the “free ice cream” theories of the “green economy” our statist friends now embrace as their latest raison d’etre for a controlled society. My mother-in-law — visiting from Denmark — is reading my book with a particular interest in its exposé of what her heavily taxed labor pays for in that country.

The book also prompted her to relay an amazing new anecdote to the case study referred to by the Danes as “the fairy tale of the windmills.”

In the northern region of Jutland called Thy, Denmark is forcing people off of their land (“Kelo” is apparently Danish for “Kelo”) and — wait for it — preparing to clear-cut fifteen square kilometers of forest, and eventually thirty, in order to put up more of the bird- and job-killing monstrosities.

These giant windmills are not even intended to fill an energy gap for the Danish economy. No, they are to be onshore experimental versions of massive new off-shore turbines — with the facility to be rented out to wind mavens like Siemens.

The argument they are forwarding for doing this is not just the typically risible claim that this is necessary for the environment. After all, “[the] deforestation will create an increase of 400,000 tons of CO2 emissions, the equivalent of the CO2 emissions of 100,000 people per year.”

They are also forwarding the argument that this must occur in order to create Danish jobs.

Of course, “creating jobs,” to the extent such mandates can do this (as they are typically net job killers), appears much more necessary after the state first made it difficult for the private sector to do such things. Denmark enforced what methods, and what quantity of those methods, are acceptable for producing electricity. It always turns out that the acceptable ways are inefficient, intermittent, and expensive. Which sort of explains the need for mandates.

Employers, who pass taxes and other costs along until they can’t, leave for less inane political and economic environments. Like Kentucky, for example, as I detail in Power Grab.

So, yes, President Obama, let’s think of what’s happening in these European countries.

For the moment, put aside the spectacular irony of what the “green” agenda necessitates well before reaching its logical conclusion. There is a more important lesson here, as our policy sages in Washington seek to cram through a replica of Europe’s social democracy here before November, when voters get to weigh in on this form of “change.”

The key lesson to be learned from Spain: these glorified make-work schemes, which saddle the economy with boondoggles of massive physical redundancies, inherently create “bubbles.” The bubbles exist solely because of wealth transfers from taxpayers — meaning from productive uses to intrinsically uneconomic ones (again, they have to be mandated and subsidized to exist).

The bubbles only avoid bursting with constant infusions of redistributed taxpayer wealth. But simply existing is not politically tolerable to the constituencies that politicians create with the subsidy and mandate schemes. There is a reason that GE’s Washington lobbying budget tops that of all of Big Oil … combined. Once a “market” is created by government fiat, recipients of the largess pour tremendous resources into keeping the gravy train rolling, and gaining steam.

This is just what happened in Spain, where the public deficit threatened an economic default.

And in Denmark, where the politicians look to clear every inch of land they can find — even if it happens to be occupied or forested — to put up more windmills in the name of “creating jobs.”

We have learned from Obama’s models in Spain and Denmark (and also Germany) that no net jobs are — or can be — created by these financial rat holes. Opportunity costs and direct jobs lost due to the economic pain caused by higher energy prices and other restrictions on individual liberty harm the economy as a whole. And what the economy gets in return are temporary jobs requiring more debt — which means taxes.

The schemes drain the public treasury, passing off your hard-earned money to entrenched interests. And, now, they lead to clear-cutting forests and “takings.”

In a way — a particular way known mostly to Washington, but apparently also everywhere else the “market socialists” rule — it just makes sense.

Christopher Horner is a senior fellow at the Competitive Enterprise Institute, and author of the recently-published Power Grab: How Obama’s Green Policies Will Steal Your Freedom and Bankrupt America.

Reliance on Oil Sands Grows Despite Risks

CONKLIN, Alberta — Beneath the subarctic forests of western Canada, deep under the peat bogs and herds of wild caribou, lies the tarry rock that is one of America’s top sources of imported oil.

There is no chance of a rig blowout here, or a deepwater oil spill like the one from the BP well that is now fouling the Gulf of Mexico. But the oil extracted from Canada’s oil sands poses other environmental challenges, like toxic sludge ponds, greenhouse gas emissions and the destruction of boreal forests.

In addition, critics warn that American regulators have waived a longstanding safety standard for the pipelines that deliver the synthetic crude oil from Canada to refineries in the United States and have not required any specific emergency plans to deal with a spill, which even regulators acknowledge is a possibility.

Oil sands are now getting more scrutiny as the Obama administration reviews a Canadian company’s request to build a new 2,000-mile underground pipeline that would run from Alberta to the Texas Gulf Coast and would significantly increase America’s access to the oil. In making the decision, due this fall, federal officials are weighing the environmental concerns against the need to secure a reliable supply of oil to help satisfy the nation’s insatiable thirst.

The gulf accident adds yet another layer of complexity. Regulators and Congress are weighing new limits on drilling off the coastline after the Deepwater Horizon catastrophe, increasing the pressure to rely more heavily on Canada’s oil sands. At the same time, political consciousness of the risks has grown.

Canadian oil sands are expected to become America’s top source of imported oil this year, surpassing conventional Canadian oil imports and roughly equaling the combined imports from Saudi Arabia and Kuwait, according to IHS Cambridge Energy Research Associates, a consulting firm.

In a new report, it projects that oil sands production could make up as much as 36 percent of United States oil imports by 2030. “The uncertainty and the slowdown in drilling permits in the gulf really underscores the growing importance of Canadian oil sands, which over the last decade have gone from being a fringe energy source to being one of strategic importance,” said Daniel Yergin, an oil historian and chairman of IHS CERA. “Looking ahead, its importance is only going to get bigger.”

Last week, a phalanx of Canadian diplomats took advantage of a previously planned trip to Washington to promote oil sands as a safer alternative to deepwater drilling because leaks would be easier to detect and control.

In an interview afterward, Alberta’s premier, Ed Stelmach, said he was not trying to capitalize on the gulf disaster, but merely promoting “what we have to offer, which is security of supply” and “a safe stable government.”

From a supply standpoint, there is much to recommend oil sands, also known as tar sands. Canada has 178 billion barrels of proven oil reserves, virtually all in oil sands. Only Saudi Arabia has more proven oil reserves.

The United States produces about five million barrels of oil a day and imports 10 million more. Canada accounts for about 1.9 million barrels of the daily imports, roughly half of it from oil sands.

“If you need crude to fuel your economy, you’d really better be thinking about Canada,” said Chris Seasons, president of the Canadian unit of Devon Energy, an oil company based in Oklahoma City. Devon is already producing 35,000 barrels a day from oil sands around Conklin. It expects to expand its production to 200,000 barrels a day by 2020, in part through a second project, with BP. That would be roughly equivalent to current imports from Kuwait.

To increase delivery of oil sands crude, TransCanada is building the Keystone pipeline system. Two Keystone pipelines have been approved, with the first one delivering oil to Illinois in June. A much longer pipeline to Texas, called Keystone XL, is still under federal review. If fully developed as proposed, the system would allow Canada to export an additional 1.1 million barrels of oil a day.

In a world in which so many oil-producing nations are far away, unstable or hostile to the United States, Canadian oil sands hold great political appeal.

“It is undeniable that having a large supply of crude oil available by pipeline from a friendly neighbor is extremely valuable to the energy security of the United States,” said David L. Goldwyn, coordinator for international energy affairs at the State Department. The department is scheduled to decide this year whether to approve Keystone XL.

Complicating the calculation is the fact that Canada’s backup market for its oil is probably China. Plans are already under way for pipelines from Alberta to Canada’s western coast for shipments to Asia. Although those could take up to a decade to build because of land considerations, Mr. Stelmach, Alberta’s premier, flew to China on Friday on a trade mission to Shanghai, Beijing and Harbin. He said one of his messages was, “We’ve got energy.”

Whatever the advantages, serious environmental problems and risks come with producing oil from oil sands.

Most of the biggest production sites are huge mine pits, accompanied by ponds of waste that are so toxic that the companies try to frighten birds away with scarecrows and propane cannons.

Extracting oil from the sands produces far more greenhouse gases than drilling, environmental groups say, and the process requires three barrels of water for every barrel of oil produced because the dirt must be washed out. Already, tailing pools cover 50 square miles of land abutting the Athabasca River.

The mines are also carving gashes in the world’s largest intact forest, which serves as a vital absorber of carbon dioxide and a stopover point for millions of migrating birds.

Proponents of oil sands acknowledge the dirtiness of the extraction process. But they say that newer projects are using more efficient technologies.

For example, instead of surface mining, the Devon project injects high-pressure steam into the reservoir to enable the heated oil sands to be pumped out of the ground as a fluid, which is less invasive of the forest. Shell is also experimenting with ways to capture some of the carbon emissions, and other companies are trying to use solvents to heat the steam more efficiently.

Some analysts argue that imports from oil sands will replace conventional oil from places like Venezuela and Mexico, where heavy oil requires so much refining that it produces a comparable amount of greenhouse gas emissions. For the United States, “in the grand scheme of things, the actual emissions impact is very small,” said Michael A. Levi, a senior fellow at the Council on Foreign Relations.

But environmental groups are unmoved. “Having tar sands in our energy mix is simply inconsistent with the kind of climate and environment promises we’ve heard the Obama administration make,” said Susan Casey-Lefkowitz, who works on the issue at the Natural Resources Defense Council.

The high-pressure pipelines that transport the oil give rise to separate safety and environmental concerns, which have been spotlighted by local ranchers and other opponents during the current comment period on the State Department’s environmental impact statement for the proposed pipeline expansion.

One big question is whether TransCanada should get waivers to use thinner pipes on Keystone XL than is normally required in the United States.

The Transportation Department’s Pipeline and Hazardous Materials Safety Administration, which oversees oil pipelines, gave such waivers to TransCanada for the first two Keystone pipelines. TransCanada says the thinner pipes have been allowed in Canada for decades and pose no extra risk.

But Cesar de Leon, a former deputy administrator of the pipeline and safety administration who is now an independent pipeline safety engineer, said the thinner standard is appropriate only if pipelines are being aggressively monitored for deterioration. Although the safety administration required such monitoring in the Keystone permits, it “didn’t have the people to monitor compliance,” he said.

In a report in March on the agency’s broader permitting practices, the Transportation Department’s inspector general found that, in many cases, the agency had failed to check the safety records of permit applicants and had not checked to verify that permit terms were being followed.

Officials of the safety administration did not respond to interview requests. But in written testimony to a House committee in April, the agency’s new administrator, Cynthia L. Quarterman, acknowledged problems and promised to improve. “As you know,” she said, “we inherited a program that suffered from almost a decade of neglect and was seriously adrift.”

Senator Jon Tester, Democrat of Montana, said the whole situation was alarmingly reminiscent of the permit waivers that were routinely granted to offshore oil wells, including the BP well leaking in the gulf. “I think it is incumbent on myself as a policy maker to say ‘hold it,’ ” Mr. Tester said.

In another sign of concern among policy makers, on April 29 South Dakota’s Public Utilities Commission rejected TransCanada’s request for an exemption from a state requirement to notify affected landowners about spills of less than five barrels.

The gulf spill haunted local public hearings on the Keystone project last week in Murdo, S.D., and York, Neb.

Some people along the path of the proposed and existing pipelines complained that no one had required TransCanada to produce an emergency plan for a spill, even though the new pipes would traverse pristine territory, including the Ogallala Aquifer, which supplies water to a wide swath of the nation’s breadbasket and where even a small spill could have grave consequences.

Others demanded that thicker steel be used. And some asked how the pipeline would be monitored for wear and tear.

At the York hearing on May 10, Jim Condon, an engineer from Lincoln, Neb., said the amount of oil spewing from the leaking BP well was just a small fraction of what would be passing through the Keystone XL pipeline. “A rupture of the pipeline would be a huge problem,” he said.


Savings Experiment: Which lightbulbs save the most money?

By Bruce Watson
With high energy costs driving up electricity bills and an ever-widening array of lighting choices available at the local hardware store, it can be hard to pick the best — and cheapest — lighting option. In today’s Savings Experiment, we’ll explore the available lighting choices and pick the one that’s best for you.

The first light bulbs — and the ones that are used in most homes — are incandescents. Basically, these bulbs follow Thomas Edison’s original design: an electrical current runs through a filament in a glass bulb. The filament then heats up, emitting light, as well as a lot of heat.

In terms of base price, incandescent bulbs seem like the cheapest option: a four-pack costs somewhere between$2 and $3. But the cost goes up once you screw them into a lamp: incandescents use between 20 and 100 watts per hour, which translates into 2-12 kilowatts per month. Also, they don’t last too long: most bulbs work for between 750 and 1,000 hours, or 6-8 months, which means that they need to be replaced fairly often.

They are also the most convenient lighting option. Incandescent bulbs can be used with dimmer switches and are available in a wide variety of shapes and sizes, making them a perfect fit for almost any lighting design. They are easy to dispose of and, after more than 100 years of use, most of the bugs have been worked out.

The current lightbulb leaders are compact fluorescent lamps or CFLs. First developed in the early 1980’s, CFLs didn’t become really popular until the last few years. Part of the reason for this is cost: although their price has dropped in recent years, CFLs still run $2 and up per bulb, about four times as much as incandescent bulbs. On the other hand, CFLs also last a lot longer: most will run for between 6,000 and 10,000 hours, or 4-7 years of normal use. In fact, given that they will run for 6-10 times longer than incandescents, their basic price is up to 50% less than incandescent bulbs. And CFLs also use a lot less electricity: a 26-watt compact fluorescent puts out as much light as a 100-watt incandescent, but only uses about a quarter of the electricity. See post here.  See earlier post on Lighting the Way With LED here.

Lessons from the Gulf blowout

Paul Driessen

Transocean’s semi-submersible drilling vessel Deepwater Horizon was finishing work on a wellbore that had found oil 18,000 feet beneath the seafloor, in mile-deep water fifty miles off the Louisiana coast. Supervisors in the control cabin overlooking the drilling operations area were directing routine procedures to cement, plug and seal the borehole, replace heavy drilling fluids with seawater and extract the drill stem and bit through the riser (outer containment pipe) that connected the vessel to the blowout preventer (BOP) on the seafloor.

Suddenly, a thump and hiss were followed by a towering eruption of seawater, drilling mud, cement, oil and natural gas. The BOP and backup systems had failed to work as designed, to control the massive amounts of unexpectedly high-pressure gas that were roaring up 23,000 feet of wellbore and riser.

Gas enveloped the area and ignited, engulfing the Horizon in a 500-foot high inferno that instantly killed eleven workers. Surviving crewmen abandoned ship in covered lifeboats or jumped 80 feet to the water. 

The supply boat Tidewater Damon Bankston rushed to the scene and helped crewmen get their burned and injured colleagues aboard. Shore-based Coast Guard helicopters tore through the night sky to brave the flames and take critically injured men to hospitals.

Thirty-six hours later, the Deepwater Horizon capsized and sank, buckling the 21-inch diameter riser and breaking it off at the rig deck. Three leaks began spewing some 5,000 barrels (210,000 gallons) of crude oil per day into the ocean. As the oil gathered on the surface and drifted toward shore, it threatened a major ecological disaster for estuaries, marine life and all who depend on them for their livelihoods.

Thankfully, after getting rough for a couple days, the seas calmed. Industry, Coast Guard, NOAA and Minerals Management Service (MMS) crews and volunteer from Louisiana to Alaska had some time to recalculate the spill’s trajectory, deploy oil skimmer boats and miles of containment booms, and burn some of the oil off the sea surface. They lowered ROVs (remotely operated vehicles) to cap the end of the riser and spray chemicals that break down and disperse the oil.

Aircraft sprayed more dispersants over floating oil, and technicians hurried to deploy cofferdams specially designed to sit atop the broken riser and BOP stack, fix the ice crystal (hydrates) problem, collect the leaking oil and pipe it up to tanker barges. Drill ships are on the scene, to drill relief wells, intersect the original hole, cement it shut and permanently stop the leak. ExxonMobil, Shell, ConocoPhillips and many other companies have offered BP, Transocean and Halliburton assistance on all these fronts.

How bad will the disaster be? Much depends on how long the calm weather lasts, how quickly the cofferdams can be installed, and how successful the entire effort is. There is some cause for optimism – and much need for prayer, crossed fingers and hard work.

But it will take weeks to years of uncontrolled leakage, before this spill comes close to previous highs, such as the:

* Santa Barbara Channel oil platform blowout (1969): 90,000 barrels off the California coast;

* Mega Borg tanker (1990): 121,400 barrels in the Gulf of Mexico off Galveston, TX;

* Exxon Valdez tanker (1989): 250,000 barrels along 1,300 miles of untouched Alaska shoreline;

* Ixtoc 1 oil platform blowout (1979): 3,500,000 barrels in Mexico’s Campeche Bay;

* Saddam Hussein oil field sabotage (1991): 857,000,000 barrels in Kuwait; 

* Natural seeps in US waters: 1,119,000 barrels every year from natural cracks in the seafloor.

Cold water and climate meant Alaska’s Prince William Sound recovery was slow; Campeche beaches and coastal waters largely rebounded much more rapidly. Mississippi River flows through the warm Delta region may help keep some oil from pushing too far into the estuaries and speed recovery of oyster, shrimp and fishing areas, as it did with spills during pre-1960 drilling. Prayers and crossed fingers again.

Should we stop drilling offshore? We can hardly afford to. We still need to drill, so that we can drive, fly, farm, heat our homes, operate factories and do everything else that requires reliable, affordable petroleum. Indeed, over 62% of all US energy still comes from oil and gas. And we certainly need the jobs and revenues that US offshore energy development generates.

We’ve already banned drilling in ANWR, off the Florida, Atlantic and Pacific coasts, and in many other areas. We’ve made it nearly impossible to mine coal or uranium, or build new coal-fired power plants or nuclear reactors. We’ve largely forced companies to drill in deep Gulf waters, where risks and costs are far higher, and the ability to respond quickly and effectively to accidents is lower.

We’ve also forced companies to take drilling risks to foreign nations – and then increased the risks of tanker accidents that cause far greater spillage when they bring that oil to America. Meanwhile, Russia, China and Cuba are preparing to drill near the same Gulf and Caribbean waters that we’ve made off limits – employing their training, technologies, regulations and ecological philosophies.

Even with this blowout and its 1969 Santa Barbara predecessor, America’s offshore record is excellent. Since 1969, we have drilled over 50,000 wells in state waters and on the Outer Continental Shelf. There have been 13 losses of well control involving more than 50 barrels: five were less than 100 barrels apiece; one was a little over 1,000 barrels; two (both in 1970) involved 30,000 barrels or more. Only in Santa Barbara (so far) did significant amounts of oil reach shore and cause serious environmental damage.

Globally, tankers have spilled four times more oil than drilling and production operations, often in much bigger mishaps, often in fragile areas – and chronic discharges from cars and boats dwarf tanker spills by a factor of eight. (All spill data are from the MMS and National Research Council.)

What should we do next? Recognize that life, technology and civilization involve risks. Humans make mistakes. Equipment fails. Nature presents us with extreme, unprecedented, unexpected power and fury.

Learn the right lessons from this tragic, catastrophic, probably preventable accident. Avoid grandstanding and kneejerk reactions. Replace people’s lost income. Insist on responsible, adult thinking – and a thorough, expert, non-politicized investigation. Find solutions instead of assigning blame.

Why did the BOP and backups fail? What went wrong with the cement, plugs and pressure detection devices, supervisor and crew monitoring and reactions, to set off the catastrophic chain of events? How can we improve the technology and training, to make sure such a disaster never happens again? Did the regulators fail, too? How can we improve oil spill cleanup technologies and rapid response?

Ask what realistic alternatives we have. Not “Sim City” or “Sim USA” and virtual energy. Real energy.

Can we afford to shut down our domestic oil and gas industry – economically, ecologically and ethically – and import more, as we export risks to other countries, and shift risks from drilling accidents to tanker accidents? Can we afford to replace dozens of offshore rigs with thousands of towering, unreliable offshore wind turbines, creating obstacle courses for ships laden with bunker fuel or crude oil?  

Drilling in deep waters far from shore is a complex, difficult, dangerous business. Let us remember and pray for those who died, those who were burned and injured, and their families and loved ones. Let us also pray for all who daily risk life and limb, to bring us the energy that makes our lives, jobs and living standards possible; for all whose lives have been affected by the spill; and for a rapid repair and cleanup.

[To learn more about offshore drilling and production and this accident, visit the NOAA emergency response page, Open Choke Deepwater Horizon spill page, and Drilling Ahead oil professionals network.]

Paul Driessen is senior policy advisor for the Committee For A Constructive Tomorrow.

In the Pipeline: May 7, 2010

Washington, DC – The American Energy Alliance (AEA), a non-profit organization that educates and engages the public on benefits of market-based energy policy, today congratulated Senator Lindsey Graham (R-S.C.) for siding with his constituents and opting out of one of the most economically damaging pieces of legislation this country has ever seen.

“Senator Graham has spent nearly six and a half months negotiating behind closed doors with big business, special interests and rent-seeking lobbyists to increase the price of 85 percent of the energy Americans use daily,” said Thomas J. Pyle, president of AEA. “And the Senator should be congratulated today for apparently backing out of this job killing legislation.”

AEA was the first organization to launch a comprehensive media campaign in South Carolina shortly after Senator Graham announced his intent to draft a national energy tax with Senator John Kerry (D-Mass.). This campaign, which ran statewide, was the beginning of a multi-pronged strategy to educate Palmetto State voters on the negative economic impacts such a plan would have on their state. This proposal, while not yet revealed publicly, was reported  to have included a renewable electricity standard (RES), which is the mandated use of expensive forms of electricity and a increase in the federal gasoline and diesel tax, which some have coined the “Graham Gas Tax.” 

“By walking away from this effort, it is clear that Senator Graham chose to listen to his constituents, who urged him to stay away from this legislation. We hope that Senator Graham sticks to his guns and remains on the side of the American people who oppose cap-and-trade and a national energy tax,” concluded Pyle.

While 71 Percent of Americans Oppose an Increase in the Gas Tax, Senator Graham Proclaims, “I’m in this to win.” Win what we ask? New York Times/E&E News (5/6) reports, “Sen. Lindsey Graham doesn’t sound like someone who’s abandoned the push to pass a global warming bill. Standing in the Senate’s historic Kennedy Caucus Room, the site of hearings on the sinking of the Titanic and Watergate, the South Carolina Republican told a room full of environmentalists and Obama administration officials Tuesday night that he is still in the fight to enact legislation that caps greenhouse gases and expands domestic energy production.”I’m not playing the game to win 43 [votes],” he said, referring to the high-water mark of past Senate climate bill roll calls. “I’m not in this to make a statement. I’m in this to win.” Graham’s speech at the private event hosted by the Environmental Defense Fund took place in the same room he and Sens. John Kerry (D-Mass.) and Joe Lieberman (I-Conn.) had reserved eight days earlier for a press conference to roll out their energy and climate bill — an event that got postponed when Graham protested over Democratic leadership’s insistence that immigration also belongs on the Senate agenda this year. Graham’s office didn’t comment as of press time on his status in the climate negotiations, leaving many to guess where he officially is. “I think it’s like the hokeypokey,” said Sen. Jon Cornyn (R-Texas). “You put your right foot in. You take your right foot out. I’m not sure where he is right now.” “He wants to do it,” said Sen. James Inhofe (R-Okla.), an outspoken skeptic of climate science who has clashed with Graham on the climate issue. Inhofe noted that Graham’s involvement on the climate bill, along with immigration and closing the Guantanamo Bay military prison, is “all McCain stuff…”

This Guy is All Over the Place. One Day He’s the Ring Leader, Next Day He’s Out and Now He’s “Pausing.” One Thing Remains Clear: He Authored The Graham Gas Tax. E&E News (5/7, subs. req’d) reports, “Sen. Lindsey Graham sees himself as a possible 60th vote on the comprehensive energy and climate bill. But the South Carolina Republican doubts the debate will even get that far, at least in the current political atmosphere that includes a ripening battle over immigration and uncertainty over the causes of the massive oil spill in the Gulf of Mexico. Graham two weeks ago threw a major league curveball into the prospects for the climate bill when he backed out of seven months of negotiations… He blames the Obama administration and Senate Majority Leader Harry Reid (D-Nev.) for playing politics on the climate bill… He also thinks the White House left him hanging when unnamed administration officials criticized what Fox News called “Graham’s gasoline tax gambit” — a reference to the “linked fee” idea that he had floated as a way to control greenhouse gas emissions from transportation fuels. For now, Graham says he has “paused” from the talks with Kerry and Lieberman… And that means he probably won’t be at the legislation’s unveiling, which is expected as early as next week. “He’ll be there in spirit and substance but probably not with us,” Lieberman said yesterday. On the oil spill, Graham said he is concerned the bill is losing ground because Sen. Bill Nelson (D-Fla.) earlier this week declared an expansion for offshore drilling “dead on arrival.” Graham said he is worried about the environmental catastrophe in the Gulf of Mexico, but he does not see it as reason enough to stop drilling altogether.”

And it Begins. Interior Cancels Virginia Lease Sale Scheduled for 2011/2012 (!), Tells Shell Final Permits for the Chukchi and Beaufort Are on Hold. The Hill (5/7) reports, “The Interior Department is formally suspending its planning for the sale of oil-and-gas leases off Virginia’s coast, underscoring new uncertainties about expanded drilling in the wake of the Gulf of Mexico oil spill. Interior’s Minerals Management Service is canceling three public “scoping meetings” for the lease sale that were scheduled later this month, and indefinitely postponing the public comment period. The action will be announced in Friday’s Federal Register. The lease sale, which covers tracts at least 50 miles off Virginia’s coast, is slated for 2011 or 2012. Interior Secretary Ken Salazar said Thursday that no new offshore drilling permits will be issued while Interior conducts a safety review the White House ordered in response to the Gulf of Mexico oil spill. Interior’s action could slow Shell Oil’s efforts to drill exploratory wells in Arctic waters off Alaska’s northern coast. The head of Interior’s Minerals Management Service informed Shell Thursday that the agency “will not make a final decision on the requested permits for the drilling of exploration wells in the Chukchi and Beaufort Seas until the Department of the Interior’s report to the President has been submitted and evaluated,” Interior said.”

Look Out. While Enviros and Anti-Energy Politicians Look to Capitalize on Gulf Tragedy, the Blame Game/Finger Pointing Begins. Reuters (5/6) reports, “Oil giant BP Plc has been carefully playing the public relations game by saying it bore responsibility for the costs of the clean up of the oil that was shooting out of the damaged well a mile below the surface of the Gulf. But in recent days it has begun to point directly at driller Transocean Ltd as the main culprit. “This was not our drilling rig and not our equipment. It was not our people, our systems or our processes. Their systems, their people, their equipment,” BP Chief Executive Tony Hayward… Transocean, which is the world’s largest offshore oil driller, with rigs used by oil companies around the globe, fired back on Thursday.”It is inappropriate to speculate on what may have caused the catastrophic failure of a cased and cemented well in advance of that investigation,” Transocean Chief Executive Steven Newman told a conference call. Well drillers place cement around the casing in the wells to secure the pipes and prevent them from breaking or leaking — a job performed on the BP well by Halliburton Co, the world’s second largest oilfield services company. But Halliburton has said cementing was completed 20 hours before the accident and that testing had shown the work was done properly. Anadarko Petroleum, BP’s partner in the well with a 25 percent stake, is also on the hook for some clean-up liability, although the Woodlands, Texas company was quick to say it did not make any operational mistakes . “There’s going to be a lot of fingers pointing in a lot of different ways,” Robert Reeves, Anadarko’s general counsel said on a conference call on Wednesday.”

Hey Nick Jo and Ricky, What Took So Long to Respond? Five Weeks Ago, EPA Began the Formal Process to Bankrupt the Coal Industry, Yesterday; Coal Country Members Got Around to Responding. E&E News (5/6, subs. req’d) reports, “Democratic lawmakers from Virginia and West Virginia want U.S. EPA to rescind its new Clean Water Act standards for surface coal mining in central Appalachia. EPA’s guidelines fail to properly balance environmental protection and energy development and should be withdrawn while the Obama administration works with state agencies to develop new ones, Reps. Nick Rahall (D-W.Va.), Alan Mollohan (D-W.Va.) and Rick Boucher (D-Va.) said yesterday in a letter to EPA Administrator Lisa Jackson. Last month, EPA issued permitting guidelines that included the first-ever limit on the amount of salt that mines would be allowed to release into surrounding streams. To obtain permits, operators will have to demonstrate that their projects will not cause salt levels in surrounding streams to rise more than five times the normal level. The limit would ban filling streams with mining waste in nearly all cases, Jackson said. EPA said the limits are necessary in light of a growing body of evidence that surface coal mining is causing severe damage to the region’s environment and public health. The guidelines only apply to permits in Pennsylvania, Ohio, West Virginia, Virginia, Kentucky and Tennessee, a regional focus the representatives criticized.”

Americans Say Drill. New IBD Poll Shows that 59 Percent of Americans Still Support Offshore Energy Exploration. Investor’s Business Daily (5/6) Editorializes, “After BP’s oil spill in the Gulf of Mexico, federal and state governments moved quickly to shelve plans to drill off the U.S. coast. But a new poll taken after the spill suggests Americans still support drilling. Preliminary results of an IBD/TIPP Poll of 795 U.S. adults, taken from April 30 to May 5, show that a large majority — 59% — approve of “oil exploration and drilling in America’s national territorial waters.” Just 31% said they disapprove. The cold reality is we need oil. A retreat from drilling would be economically unwise. BP’s mess must be put into perspective. “We get more than a fifth of our domestic production of oil here in the U.S. from off the Gulf Coast, over a million barrels a day,” says the American Enterprise Institute’s Steve Hayward. “If we don’t continue that … we’ll be importing more oil to make up for it, even if consumption stays flat.” We need oil to fuel our economy — literally. Energy consumption directly correlates to GDP growth. Average Americans understand this. They know offshore drilling rigs have a far lower risk of oil spills than do tankers. And they probably also know that even if this spill exceeds the Exxon Valdez spill, it will still only be about the 40th worst in the last 40 years. The most tragic part of the April 30 accident was the death of 11 men. We mourn those lost. But the environment will heal. As for those who will exploit this to oppose drilling, we ask: What part of your modern life and comforts will you give up? Your car? Central heating? Refrigerator? Computer? Your food, shipped long-distance with oil and diesel burning trucks and trains?”

Here’s a Shocker; Five Enviro Groups File Lawsuit to Shut Down Energy Exploration in South-Central Wyo. The Associated Press (5/6) reports, “Five environmental groups sued Thursday to challenge a long-range U.S. Bureau of Land Management plan that has begun guiding oil and gas development over a vast area in south-central Wyoming. The groups say the BLM failed to protect undeveloped areas and didn’t sufficiently consider ozone pollution or climate change in approving a resource management plan for the BLM’s Rawlins Field Office in late 2008. The plan covers 3.4 million acres, or 5,300 square miles. The Wilderness Society, Natural Resources Defense Council, Biodiversity Conservation Alliance, Wyoming Outdoor Council and Wyoming Wilderness Association filed suit in U.S. District Court in Washington, D.C. An oil and gas industry representative called the lawsuit an attempt to shut down oil and gas development in the area. Kathleen Sgamma, director of government affairs for the Independent Petroleum Association of Mountain States, called it a “pretty standard lawsuit.” The BLM developed the plan over several years with participation from a variety of groups, Sgamma pointed out. “The groups suing are never satisfied with the balanced approach that BLM tries to take. It’s another way to try to shut down oil and gas,” she said.”

American Energy Alliance

The Great American Bubble Machine

[Goldman Sachs fans might also like today’s post on how 32 megs of Goldman Sachs proprietary trade code got uploaded to a German server. Researchers should also note the links at the bottom of this post, which lead to a table of contents that organizes all our contemporaneous posts on The Big FAIL (the current financial crisis) as it unfolded, going back to pre-TARP days. Note also the Goldman Sachs tag above. –lambert]

Here’s the Matt Taibbi’s article on how Goldman-Sachs helped bring about and profit from our current financial crisis, “The Big FAIL”, found at Something Awful (via LOLfed). Despite the weapons-grade snark in the first paragraph, which I underlined, it’s a Big Picture post, very analytical, and has a hypothesis of what is to come that we can test for. So I recommend you read the whole thing, even though it is quite long.


From tech stocks to high gas prices, Goldman Sachs has engineered every major market manipulation since the Great Depression – and they’re about to do it again


The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled-dry American empire, reads like a Who’s Who of Goldman Sachs graduates.

By now, most of us know the major players. As George Bush’s last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton’s former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup – which in turn got a $300 billion taxpayer bailout from Paulson. There’s John Thain, the rear end in a top hat chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multibillion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain’s sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden parachute payments as his bank was self-destructing. There’s Joshua Bolten, Bush’s chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York – which, incidentally, is now in charge of overseeing Goldman – not to mention …

But then, any attempt to construct a narrative around all the former Goldmanites in influential positions quickly becomes an absurd and pointless exercise, like trying to make a list of everything. What you need to know is the big picture: If America is circling the drain, Goldman Sachs has found a way to be that drain – an extremely unfortunate loophole in the system of Western democratic capitalism, which never foresaw that in a society governed passively by free markets and free elections, organized greed always defeats disorganized democracy.

The bank’s unprecedented reach and power have enabled it to turn all of America into a giant pump-and-dump scam, manipulating whole economic sectors for years at a time, moving the dice game as this or that market collapses, and all the time gorging itself on the unseen costs that are breaking families everywhere – high gas prices, rising consumer-credit rates, half-eaten pension funds, mass layoffs, future taxes to pay off bailouts. All that money that you’re losing, it’s going somewhere, and in both a literal and a figurative sense, Goldman Sachs is where it’s going: The bank is a huge, highly sophisticated engine for converting the useful, deployed wealth of society into the least useful, most wasteful and insoluble substance on Earth – pure profit for rich individuals.

They achieve this using the same playbook over and over again. The formula is relatively simple: Goldman positions itself in the middle of a speculative bubble, selling investments they know are crap. Then they hoover up vast sums from the middle and lower floors of society with the aid of a crippled and corrupt state that allows it to rewrite the rules in exchange for the relative pennies the bank throws at political patronage. Finally, when it all goes bust, leaving millions of ordinary citizens broke and starving, they begin the entire process over again, riding in to rescue us all by lending us back our own money at interest, selling themselves as men above greed, just a bunch of really smart guys keeping the wheels greased. They’ve been pulling this same stunt over and over since the 1920s – and now they’re preparing to do it again, creating what may be the biggest and most audacious bubble yet. …


Goldman wasn’t always a too-big-to-fail Wall Street behemoth, the ruthless face of kill-or-be-killed capitalism on steroids – just almost always. The bank was actually founded in 1869 by a German immigrant named Marcus Goldman, who built it up with his son-in-law Samuel Sachs. They were pioneers in the use of commercial paper, which is just a fancy way of saying they made money lending out short-term IOUs to small-time vendors in downtown Manhattan.

You can probably guess the basic plotline of Goldman’s first 100 years in business: plucky, immigrant-led investment bank beats the odds, pulls itself up by its bootstraps, makes shitloads of money. In that ancient history there’s really only one episode that bears scrutiny now, in light of more recent events: Goldman’s disastrous foray into the speculative mania of pre-crash Wall Street in the late 1920s.

This great Hindenburg of financial history has a few features that might sound familiar. Back then, the main financial tool used to bilk investors was called an “investment trust.” Similar to modern mutual funds, the trusts took the cash of investors large and small and (theoretically, at least) invested it in a smorgasbord of Wall Street securities, though the securities and amounts were often kept hidden from the public. So a regular guy could invest $10 or $100 in a trust and feel like he was a big player. Much as in the 1990s, when new vehicles like day trading and e-trading attracted reams of new suckers from the sticks who wanted to feel like big shots, investment trusts roped a new generation of regular-guy investors into the speculation game.

Beginning a pattern that would repeat itself over and over again, Goldman got into the investment-trust game late, then jumped in with both feet and went hog-wild. The first effort was the Goldman Sachs Trading Corporation; the bank issued a million shares at $100 apiece, bought all those shares with its own money and then sold 90 percent of them to the hungry public at $104. The trading corporation then relentlessly bought shares in itself, bidding the price up further and further. Eventually it dumped part of its holdings and sponsored a new trust, the Shenandoah Corporation, issuing millions more in shares in that fund – which in turn sponsored yet another trust called the Blue Ridge Corporation. In this way, each investment trust served as a front for an endless investment pyramid: Goldman hiding behind Goldman hiding behind Goldman. Of the 7,250,000 initial shares of Blue Ridge, 6,250,000 were actually owned by Shenandoah – which, of course, was in large part owned by Goldman Trading.

The end result (ask yourself if this sounds familiar) was a daisy chain of borrowed money, one exquisitely vulnerable to a decline in performance anywhere along the line ….

Fast-Forward about 65 years. Goldman not only survived the crash that wiped out so many of the investors it duped, it went on to become the chief underwriter to the country’s wealthiest and most powerful corporations. Thanks to Sidney Weinberg, who rose from the rank of janitor’s assistant to head the firm, Goldman became the pioneer of the initial public offering, one of the principal and most lucrative means by which companies raise money. During the 1970s and 1980s, Goldman may not have been the planet-eating Death Star of political influence it is today, but it was a top-drawer firm that had a reputation for attracting the very smartest talent on the Street.

It also, oddly enough, had a reputation for relatively solid ethics and a patient approach to investment that shunned the fast buck; its executives were trained to adopt the firm’s mantra, “long-term greedy.” One former Goldman banker who left the firm in the early Nineties recalls seeing his superiors give up a very profitable deal on the grounds that it was a long-term loser. “We gave back money to ‘grownup’ corporate clients who had made bad deals with us,” he says. “Everything we did was legal and fair – but ‘long-term greedy’ said we didn’t want to make such a profit at the clients’ collective expense that we spoiled the marketplace.” …

But then, something happened. It’s hard to say what it was exactly; it might have been the fact that Goldman’s co-chairman in the early Nineties, Robert Rubin, followed Bill Clinton to the White House, where he directed the National Economic Council and eventually became Treasury secretary. …

Rubin was the prototypical Goldman banker. He was probably born in a $4,000 suit, he had a face that seemed permanently frozen just short of an apology for being so much smarter than you, and he exuded a Spock-like, emotion-neutral exterior; the only human feeling you could imagine him experiencing was a nightmare about being forced to fly coach. It became almost a national cliche that whatever Rubin thought was best for the economy – a phenomenon that reached its apex in 1999, when Rubin appeared on the cover of Time with his Treasury deputy, Larry Summers, and Fed chief Alan Greenspan under the headline THE COMMITTEE TO SAVE THE WORLD. And “what Rubin thought,” mostly, was that the American economy, and in particular the financial markets, were over-regulated and needed to be set free. …

The basic scam in the Internet Age is pretty easy even for the financially illiterate to grasp. Companies that weren’t much more than pot-fueled ideas scrawled on napkins by up-too-late bong-smokers were taken public via IPOs, hyped in the media and sold to the public for megamillions. It was as if banks like Goldman were wrapping ribbons around watermelons, tossing them out 50-story windows and opening the phones for bids. In this game you were a winner only if you took your money out before the melon hit the pavement.

It sounds obvious now, but what the average investor didn’t know at the time was that the banks had changed the rules of the game, making the deals look better than they actually were. They did this by setting up what was, in reality, a two-tiered investment system – one for the insiders who knew the real numbers, and another for the lay investor who was invited to chase soaring prices the banks themselves knew were irrational. While Goldman’s later pattern would be to capitalize on changes in the regulatory environment, its key innovation in the Internet years was to abandon its own industry’s standards of quality control.

“Since the Depression, there were strict underwriting guidelines that Wall Street adhered to when taking a company public,” says one prominent hedge-fund manager. “The company had to be in business for a minimum of five years, and it had to show profitability for three consecutive years. But Wall Street took these guidelines and threw them in the trash.” Goldman completed the snow job by pumping up the sham stocks: “Their analysts were out there saying is worth $100 a share.”

The problem was, nobody told investors that the rules had changed. “Everyone on the inside knew,” the manager says. “Bob Rubin sure as hell knew what the underwriting standards were. They’d been intact since the 1930s.” …

Goldman has denied that it changed its underwriting standards during the Internet years, but its own statistics belie the claim. Just as it did with the investment trust in the 1920s, Goldman started slow and finished crazy in the Internet years. After it took a little-known company with weak financials called Yahoo! public in 1996, once the tech boom had already begun, Goldman quickly became the IPO king of the Internet era. Of the 24 companies it took public in 1997, a third were losing money at the time of the IPO. In 1999, at the height of the boom, it took 47 companies public, including stillborns like Webvan and eToys, investment offerings that were in many ways the modern equivalents of Blue Ridge and Shenandoah. The following year, it underwrote 18 companies in the first four months, 14 of which were money losers at the time. As a leading underwriter of Internet stocks during the boom, Goldman provided profits far more volatile than those of its competitors: In 1999, the average Goldman IPO leapt 281 percent above its offering price, compared to the Wall Street average of 181 percent.

How did Goldman achieve such extraordinary results? One answer is that they used a practice called “laddering,” which is just a fancy way of saying they manipulated the share price of new offerings. Here’s how it works: Say you’re Goldman Sachs, and comes to you and asks you to take their company public. You agree on the usual terms: You’ll price the stock, determine how many shares should be released and take the CEO on a “road show” to schmooze investors, all in exchange for a substantial fee (typically six to seven percent of the amount raised). You then promise your best clients the right to buy big chunks of the IPO at the low offering price – let’s say’s starting share price is $15 – in exchange for a promise that they will buy more shares later on the open market. That seemingly simple demand gives you inside knowledge of the IPO’s future, knowledge that wasn’t disclosed to the day-trader schmucks who only had the prospectus to go by: You know that certain of your clients who bought X amount of shares at $15 are also going to buy Y more shares at $20 or $25, virtually guaranteeing that the price is going to go to $25 and beyond. In this way, Goldman could artificially jack up the new company’s price, which of course was to the bank’s benefit – a six percent fee of a $500 million IPO is serious money.

Goldman was repeatedly sued by shareholders for engaging in laddering in a variety of Internet IPOs, including Webvan and NetZero. The deceptive practices also caught the attention of Nichol as Maier, the syndicate manager of Cramer & Co., the hedge fund run at the time by the now-famous chattering television rear end in a top hat Jim Cramer, himself a Goldman alum. …

“Goldman, from what I witnessed, they were the worst perpetrator,” Maier said. “They totally fueled the bubble. And it’s specifically that kind of behavior that has caused the market crash. They built these stocks upon an illegal foundation – manipulated up – and ultimately, it really was the small person who ended up buying in.” In 2005, Goldman agreed to pay $40 million for its laddering violations – a puny penalty relative to the enormous profits it made. (Goldman, which has denied wrongdoing in all of the cases it has settled, refused to respond to questions for this story.)

Another practice Goldman engaged in during the Internet boom was “spinning,” better known as bribery. Here the investment bank would offer the executives of the newly public company shares at extra-low prices, in exchange for future underwriting business. Banks that engaged in spinning would then undervalue the initial offering price – ensuring that those “hot” opening price shares it had handed out to insiders would be more likely to rise quickly, supplying bigger first-day rewards for the chosen few. So instead of opening at $20, the bank would approach the CEO and offer him a million shares of his own company at $18 in exchange for future business – effectively robbing all of Bullshit’s new shareholders by diverting cash that should have gone to the company’s bottom line into the private bank account of the company’s CEO. …

Such practices conspired to turn the Internet bubble into one of the greatest financial disasters in world history: Some $5 trillion of wealth was wiped out on the NASDAQ alone. But the real problem wasn’t the money that was lost by shareholders, it was the money gained by investment bankers, who received hefty bonuses for tampering with the market. Instead of teaching Wall Street a lesson that bubbles always deflate, the Internet years demonstrated to bankers that in the age of freely flowing capital and publicly owned financial companies, bubbles are incredibly easy to inflate, and individual bonuses are actually bigger when the mania and the irrationality are greater.


Nowhere was this truer than at Goldman. Between 1999 and 2002, the firm paid out $28.5 billion in compensation and benefits – an average of roughly $350,000 a year per employee. Those numbers are important because the key legacy of the Internet boom is that the economy is now driven in large part by the pursuit of the enormous salaries and bonuses that such bubbles make possible. Goldman’s mantra of “long-term greedy” vanished into thin air as the game became about getting your check before the melon hit the pavement.

The market was no longer a rationally managed place to grow real, profitable businesses: It was a huge ocean of Someone Else’s Money where bankers hauled in vast sums through whatever means necessary and tried to convert that money into bonuses and payouts as quickly as possible. If you laddered and spun 50 Internet IPOs that went bust within a year, so what? By the time the Securities and Exchange Commission got around to fining your firm $110 million, the yacht you bought with your IPO bonuses was already six years old. Besides, you were probably out of Goldman by then, running the U.S. Treasury or maybe the state of New Jersey. (One of the truly comic moments in the history of America’s recent financial collapse came when Gov. Jon Corzine of New Jersey, who ran Goldman from 1994 to 1999 and left with $320 million in IPO-fattened stock, insisted in 2002 that “I’ve never even heard the term ‘laddering’ before.”)

For a bank that paid out $7 billion a year in salaries, $110 million fines issued half a decade late were something far less than a deterrent – they were a joke. Once the Internet bubble burst, Goldman had no incentive to reassess its new, profit-driven strategy; it just searched around for another bubble to inflate. As it turns out, it had one ready, thanks in large part to Rubin.

Goldman’s role in the sweeping disaster that was the housing bubble is not hard to trace. Here again, the basic trick was a decline in underwriting standards, although in this case the standards weren’t in IPOs but in mortgages. …

None of that would have been possible without investment bankers like Goldman, who created vehicles to package those lovely mortgages and sell them en masse to unsuspecting insurance companies and pension funds. This created a mass market for toxic debt that would never have existed before; in the old days, no bank would have wanted to keep some addict ex-con’s mortgage on its books, knowing how likely it was to fail. You can’t write these mortgages, in other words, unless you can sell them to someone who doesn’t know what they are.

Goldman used two methods to hide the mess they were selling. First, they bundled hundreds of different mortgages into instruments called Collateralized Debt Obligations. Then they sold investors on the idea that, because a bunch of those mortgages would turn out to be OK, there was no reason to worry so much about the lovely ones: The CDO, as a whole, was sound. Thus, junk-rated mortgages were turned into AAA-rated investments. Second, to hedge its own bets, Goldman got companies like AIG to provide insurance – known as credit-default swaps – on the CDOs. The swaps were essentially a racetrack bet between AIG and Goldman: Goldman is betting the ex-cons will default, AIG is betting they won’t.

There was only one problem with the deals: All of the wheeling and dealing represented exactly the kind of dangerous speculation that federal regulators are supposed to rein in. Derivatives like CDOs and credit swaps had already caused a series of serious financial calamities: Procter & Gamble and Gibson Greetings both lost fortunes, and Orange County, California, was forced to default in 1994. A report that year by the Government Accountability Office recommended that such financial instruments be tightly regulated – and in 1998, the head of the Commodity Futures Trading Commission, a woman named Brooksley Born, agreed. That May, she circulated a letter to business leaders and the Clinton administration suggesting that banks be required to provide greater disclosure in derivatives trades, and maintain reserves to cushion against losses. …

Clinton’s reigning economic foursome – “especially Rubin,” according to Greenberger – called Born in for a meeting and pleaded their case. She refused to back down, however, and continued to push for more regulation of the derivatives. Then, in June 1998, Rubin went public to denounce her move, eventually recommending that Congress strip the CFTC of its regulatory authority. In 2000, on its last day in session, Congress passed the now-notorious Commodity Futures Modernization Act, which had been inserted into an 1l,000-page spending bill at the last minute, with almost no debate on the floor of the Senate. Banks were now free to trade default swaps with impunity.

But the story didn’t end there. AIG, a major purveyor of default swaps, approached the New York State Insurance Department in 2000 and asked whether default swaps would be regulated as insurance. At the time, the office was run by one Neil Levin, a former Goldman vice president, who decided against regulating the swaps. Now freed to underwrite as many housing-based securities and buy as much credit-default protection as it wanted, Goldman went berserk with lending lust. By the peak of the housing boom in 2006, Goldman was underwriting $76.5 billion worth of mortgage-backed securities – a third of which were subprime – much of it to institutional investors like pensions and insurance companies. And in these massive issues of real estate were vast swamps of crap.

Take one $494 million issue that year, GSAMP Trust 2006-S3. Many of the mortgages belonged to second-mortgage borrowers, and the average equity they had in their homes was 0.71 percent. Moreover, 58 percent of the loans included little or no documentation – no names of the borrowers, no addresses of the homes, just zip codes. Yet both of the major ratings agencies, Moody’s and Standard & Poor’s, rated 93 percent of the issue as investment grade. Moody’s projected that less than 10 percent of the loans would default. In reality, 18 percent of the mortgages were in default within 18 months.

Not that Goldman was personally at any risk. The bank might be taking all these hideous, completely irresponsible mortgages from beneath-gangster-status firms like Countrywide and selling them off to municipalities and pensioners – old people, for God’s sake – pretending the whole time that it wasn’t grade-D horseshit. But even as it was doing so, it was taking short positions in the same market, in essence betting against the same crap it was selling. Even worse, Goldman bragged about it in public. “The mortgage sector continues to be challenged,” David Viniar, the bank’s chief financial officer, boasted in 2007. “As a result, we took significant markdowns on our long inventory positions …. However, our risk bias in that market was to be short, and that net short position was profitable.” In other words, the mortgages it was selling were for chumps. The real money was in betting against those same mortgages.

“That’s how audacious these assholes are,” says one hedge-fund manager. “At least with other banks, you could say that they were just dumb – they believed what they were selling, and it blew them up. Goldman knew what it was doing.” I ask the manager how it could be that selling something to customers that you’re actually betting against – particularly when you know more about the weaknesses of those products than the customer – doesn’t amount to securities fraud.

“It’s exactly securities fraud,” he says. “It’s the heart of securities fraud.”

Eventually, lots of aggrieved investors agreed. In a virtual repeat of the Internet IPO craze, Goldman was hit with a wave of lawsuits after the collapse of the housing bubble, many of which accused the bank of withholding pertinent information about the quality of the mortgages it issued. …. But once again, Goldman got off virtually scot-free, staving off prosecution by agreeing to pay a paltry $60 million – about what the bank’s CDO division made in a day and a half during the real estate boom.

The effects of the housing bubble are well known – it led more or less directly to the collapse of Bear Stearns, Lehman Brothers and AIG, whose toxic portfolio of credit swaps was in significant part composed of the insurance that banks like Goldman bought against their own housing portfolios. In fact, at least $13 billion of the taxpayer money given to AIG in the bailout ultimately went to Goldman, meaning that the bank made out on the housing bubble twice: It hosed the investors who bought their horseshit CDOs by betting against its own crappy product, then it turned around and hosed the taxpayer by making him payoff those same bets.

And once again, while the world was crashing down all around the bank, Goldman made sure it was doing just fine in the compensation department. In 2006, the firm’s payroll jumped to $16.5 billion – an average of $622,000 per employee. As a Goldman spokesman explained, “We work very hard here.”

But the best was yet to come. While the collapse of the housing bubble sent most of the financial world fleeing for the exits, or to jail, Goldman boldly doubled down – and almost single-handedly created yet another bubble, one the world still barely knows the firm had anything to do with.

By the beginning of 2008, the financial world was in turmoil. Wall Street had spent the past two and a half decades producing one scandal after another, which didn’t leave much to sell that wasn’t tainted. The terms junk bond, IPO, subprime mortgage and other once-hot financial fare were now firmly associated in the public’s mind with scams; the terms credit swaps and CDOs were about to join them. The credit markets were in crisis, and the mantra that had sustained the fantasy economy throughout the Bush years – the notion that housing prices never go down – was now a fully exploded myth, leaving the Street clamoring for a new bullshit paradigm to sling.

Where to go? With the public reluctant to put money in anything that felt like a paper investment, the Street quietly moved the casino to the physical-commodities market – stuff you could touch: corn, coffee, cocoa, wheat and, above all, energy commodities, especially oil. In conjunction with a decline in the dollar, the credit crunch and the housing crash caused a “flight to commodities.” Oil futures in particular skyrocketed, as the price of a single barrel went from around $60 in the middle of 2007 to a high of $147 in the summer of 2008.

That summer, as the presidential campaign heated up, the accepted explanation for why gasoline had hit $4.11 a gallon was that there was a problem with the world oil supply. In a classic example of how Republicans and Democrats respond to crises by engaging in fierce exchanges of moronic irrelevancies, John McCain insisted that ending the moratorium on offshore drilling would be “very helpful in the short term,” while Barack Obama in typical liberal-arts yuppie style argued that federal investment in hybrid cars was the way out.


But it was all a lie. While the global supply of oil will eventually dry up, the short-term flow has actually been increasing. In the six months before prices spiked, according to the U.S. Energy Information Administration, the world oil supply rose from 85.24 million barrels a day to 85.72 million. Over the same period, world oil demand dropped from 86.82 million barrels a day to 86.07 million. Not only was the short-term supply of oil rising, the demand for it was falling – which, in classic economic terms, should have brought prices at the pump down.

So what caused the huge spike in oil prices? Take a wild guess. Obviously Goldman had help – there were other players in the physical-commodities market – but the root cause had almost everything to do with the behavior of a few powerful actors determined to turn the once-solid market into a speculative casino. Goldman did it by persuading pension funds and other large institutional investors to invest in oil futures – agreeing to buy oil at a certain price on a fixed date. The push transformed oil from a physical commodity, rigidly subject to supply and demand, into something to bet on, like a stock. Between 2003 and 2008, the amount of speculative money in commodities grew from $13 billion to $317 billion, an increase of 2,300 percent. By 2008, a barrel of oil was traded 27 times, on average, before it was actually delivered and consumed.

As is so often the case, there had been a Depression-era law in place designed specifically to prevent this sort of thing. … In 1936, Congress recognized that there should never be more speculators in the market than real producers and consumers. If that happened, prices would be affected by something other than supply and demand, and price manipulations would ensue. A new law empowered the Commodity Futures Trading Commission – the very same body that would later try and fail to regulate credit swaps – to place limits on speculative trades in commodities. As a result of the CFTC’s oversight, peace and harmony reigned in the commodities markets for more than 50 years.

All that changed in 1991 when, unbeknownst to almost everyone in the world, a Goldman-owned commodities-trading subsidiary called J. Aron wrote to the CFTC and made an unusual argument. Farmers with big stores of corn, Goldman argued, weren’t the only ones who needed to hedge their risk against future price drops – Wall Street dealers who made big bets on oil prices also needed to hedge their risk, because, well, they stood to lose a lot too.

This was complete and utter crap – the 1936 law, remember, was specifically designed to maintain distinctions between people who were buying and selling real tangible stuff and people who were trading in paper alone. But the CFTC, amazingly, bought Goldman’s argument. It issued the bank a free pass, called the “Bona Fide Hedging” exemption, allowing Goldman’s subsidiary to call itself a physical hedger and escape virtually all limits placed on speculators. In the years that followed, the commission would quietly issue 14 similar exemptions to other companies.

Now Goldman and other banks were free to drive more investors into the commodities markets, enabling speculators to place increasingly big bets. That 1991 letter from Goldman more or less directly led to the oil bubble in 2008, when the number of speculators in the market – driven there by fear of the falling dollar and the housing crash – finally overwhelmed the real physical suppliers and consumers. By 2008, at least three quarters of the activity on the commodity exchanges was speculative, according to a congressional staffer who studied the numbers – and that’s likely a conservative estimate. By the middle of last summer, despite rising supply and a drop in demand, we were paying $4 a gallon every time we pulled up to the pump.

What is even more amazing is that the letter to Goldman, along with most of the other trading exemptions, was handed out more or less in secret. “I was the head of the division of trading and markets, and Brooksley Born was the chair of the CFTC,” says Greenberger, “and neither of us knew this letter was out there.” In fact, the letters only came to light by accident. Last year, a staffer for the House Energy and Commerce Committee just happened to be at a briefing when officials from the CFTC made an offhand reference to the exemptions.

“1 had been invited to a briefing the commission was holding on energy,” the staffer recounts. “And suddenly in the middle of it, they start saying, ‘Yeah, we’ve been issuing these letters for years now.’ I raised my hand and said, ‘Really? You issued a letter? Can I see it?’ And they were like, ‘Duh, duh.’ So we went back and forth, and finally they said, ‘We have to clear it with Goldman Sachs.’ I’m like, ‘What do you mean, you have to clear it with Goldman Sachs?'” … [I]n a classic example of how complete Goldman’s capture of government is, the CFTC waited until it got clearance from the bank before it turned the letter over.

Armed with the semi-secret government exemption, Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodities Index – which tracks the prices of 24 major commodities but is overwhelmingly weighted toward oil – became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things. One was that index speculators are mostly “long only” bettors, who seldom if ever take short positions – meaning they only bet on prices to rise. While this kind of behavior is good for a stock market, it’s terrible for commodities, because it continually forces prices upward. “If index speculators took short positions as well as long ones, you’d see them pushing prices both up and down,” says Michael Masters, a hedge-fund manager who has helped expose the role of investment banks in the manipulation of oil prices. “But they only push prices in one direction: up.”

Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an “oracle of oil” by The New York Times, predicted a “super spike” in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodities-trading subsidiary, J. Aron; it also owned a stake in a major oil refinery in Kansas, where it warehoused the crude it bought and sold. Even though the supply of oil was keeping pace with demand, Murti continually warned of disruptions to the world oil supply, going so far as to broadcast the fact that he owned two hybrid cars. High prices, the bank insisted, were somehow the fault of the piggish American consumer; in 2005, Goldman analysts insisted that we wouldn’t know when oil prices would fall until we knew “when American consumers will stop buying gas-guzzling sport utility vehicles and instead seek fuel-efficient alternatives.”

But it wasn’t the consumption of real oil that was driving up prices – it was the trade in paper oil. By the summer of2008, in fact, commodities speculators had bought and stockpiled enough oil futures to fill 1.1 billion barrels of crude, which meant that speculators owned more future oil on paper than there was real, physical oil stored in all of the country’s commercial storage tanks and the Strategic Petroleum Reserve combined. It was a repeat of both the Internet craze and the housing bubble, when Wall Street jacked up present-day profits by selling suckers shares of a fictional fantasy future of endlessly rising prices.

In what was by now a painfully familiar pattern, the oil-commodities melon hit the pavement hard in the summer of 2008, causing a massive loss of wealth; crude prices plunged from $147 to $33. Once again the big losers were ordinary people. The pensioners whose funds invested in this crap got massacred: CalPERS, the California Public Employees’ Retirement System, had $1.1 billion in commodities when the crash came. And the damage didn’t just come from oil. Soaring food prices driven by the commodities bubble led to catastrophes across the planet, forcing an estimated 100 million people into hunger and sparking food riots throughout the Third World. …

After the oil bubble collapsed last fall, there was no new bubble to keep things humming – this time, the money seems to be really gone, like worldwide-depression gone. So the financial safari has moved elsewhere, and the big game in the hunt has become the only remaining pool of dumb, unguarded capital left to feed upon: taxpayer money. Here, in the biggest bailout in history, is where Goldman Sachs really started to flex its muscle.

It began in September of last year, when then-Treasury secretary Paulson made a momentous series of decisions. Although he had already engineered a rescue of Bear Stearns a few months before and helped bail out quasi-private lenders Fannie Mae and Freddie Mac, Paulson elected to let Lehman Brothers – one of Goldman’s last real competitors – collapse without intervention. (“Goldman’s superhero status was left intact,” says market analyst Eric Salzman, “and an investment-banking competitor, Lehman, goes away.”) The very next day, Paulson greenlighted a massive, $85 billion bailout of AIG, which promptly turned around and repaid $13 billion it owed to Goldman. Thanks to the rescue effort, the bank ended up getting paid in full for its bad bets: By contrast, retired auto workers awaiting the Chrysler bailout will be lucky to receive 50 cents for every dollar they are owed.

Immediately after the AIG bailout, Paulson announced his federal bailout for the financial industry, a $700 billion plan called the Troubled Asset Relief Program, and put a heretofore unknown 35-year-old Goldman banker named Neel Kashkari in charge of administering the funds. In order to qualify for bailout monies, Goldman announced that it would convert from an investment bank to a bankholding company, a move that allows it access not only to $10 billion in TARP funds, but to a whole galaxy of less conspicuous, publicly backed funding – most notably, lending from the discount window of the Federal Reserve. By the end of March, the Fed will have lent or guaranteed at least $8.7 trillion under a series of new bailout programs – and thanks to an obscure law allowing the Fed to block most congressional audits, both the amounts and the recipients of the monies remain almost entirely secret.

Converting to a bank-holding company has other benefits as well: Goldman’s primary supervisor is now the New York Fed, whose chairman at the time of its announcement was Stephen Friedman, a former co-chairman of Goldman Sachs. Friedman was technically in violation of Federal Reserve policy by remaining on the board of Goldman even as he was supposedly regulating the bank; in order to rectify the problem, he applied for, and got, a conflict-of-interest waiver from the government. Friedman was also supposed to divest himself of his Goldman stock after Goldman became a bank-holding company, but thanks to the waiver, he was allowed to go out and buy 52,000 additional shares in his old bank, leaving him $3 million richer. Friedman stepped down in May, but the man now in charge of supervising Goldman – New York Fed president William Dudley – is yet another former Goldmanite.

The collective message of all this – the AIG bailout, the swift approval for its bank-holding conversion, the TARP funds – is that when it comes to Goldman Sachs, there isn’t a free market at all. The government might let other players on the market die, but it simply will not allow Goldman to fail under any circumstances. Its edge in the market has suddenly become an open declaration of supreme privilege. “In the past it was an implicit advantage,” says Simon Johnson, an economics professor at MIT and former official at the International Monetary Fund, who compares the bailout to the crony capitalism he has seen in Third World countries. “Now it’s more of an explicit advantage.” …

And here’s the real punch line. After playing an intimate role in four historic bubble catastrophes, after helping $5 trillion in wealth disappear from the NASDAQ, after pawning off thousands of toxic mortgages on pensioners and cities, after helping to drive the price of gas up to $4 a gallon and to push 100 million people around the world into hunger, after securing tens of billions of taxpayer dollars through a series of bailouts overseen by its former CEO, what did Goldman Sachs give back to the people of the United States in 2008?

Fourteen million dollars.

That is what the firm paid in taxes in 2008, an effective tax rate of exactly one, read it, one percent. The bank paid out $10 billion in compensation and benefits that same year and made a profit of more than $2 billion – yet it paid the Treasury less than a third of what it forked over to CEO Lloyd Blankfein, who made $42.9 million last year.

How is this possible? According to Goldman’s annual report, the low taxes are due in large part to changes in the bank’s “geographic earnings mix.” In other words, the bank moved its money around so that most of its earnings took place in foreign countries with low tax rates. Thanks to our completely hosed corporate tax system, companies like Goldman can ship their revenues offshore and defer taxes on those revenues indefinitely, even while they claim deductions upfront on that same untaxed income. This is why any corporation with an at least occasionally sober accountant can usually find a way to zero out its taxes. A GAO report, in fact, found that between 1998 and 2005, roughly two-thirds of all corporations operating in the U.S. paid no taxes at all.

This should be a pitchfork-level outrage – but somehow, when Goldman released its post-bailout tax profile, hardly anyone said a word. One of the few to remark on the obscenity was Rep. Lloyd Doggett, a Democrat from Texas who serves on the House Ways and Means Committee. “With the right hand out begging for bailout money,” he said, “the left is hiding it offshore.”

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 co-head 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 carbon-credit 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 billions 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 an 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 paradigm-shifting legislation, (2) make sure that they’re the profit-making slice of that paradigm and (3) make sure the slice is a big slice. Goldman started pushing hard for cap-and-trade 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 climate-change problem.” A few years later, the bank’s carbon chief, Ken Newcombe, insisted that cap-and-trade 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 Utah-based 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 green-tech … 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 energy-futures market?

“Oh, it’ll dwarf it,” says a former staffer on the House energy committee. ….

“If it’s going to be a tax, I would prefer that Washington set the tax and collect it,” says Michael Masters, the hedge fund director who spoke out against oil-futures 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.

The bubbles don’t come ’til the end of the program… Turn off the bubbles… Turn off the bubble machine!

NOTE Read it all here.

UPDATE Again, Goldman Sachs fans might also like today’s post on how 32 megs of Goldman Sachs proprietary trade code got uploaded to a German server.

Political Train Wreck: Opposition to Electricity Grid Plan Grows

The American Clean Energy Leadership Act of 2009 included plans on how to pay for the cost of electricity transmission from projected wind farms in remote parts of the US to consumers who would benefit from the new sources of power. The Act proposes different methods of paying for the new grid capability, one of which is that costs are apportioned by benefits received. So, if a power company in New York wants to add wind generation from the Dakotas to its portfolio, that power company’s customers would pay more for the expanded grid than would residents of the Dakotas who would see less or no benefit from the upgraded grid.

Municipal utility districts from all parts of the US are lined up behind the idea that consumers who benefit are the ones who should pay more. Similarly, a group of investor-owned utilities (IOUs) including Southern Company (NYSE:SO), Alliant Energy Corp. (NYSE:LNT), CMS Energy Corp. (NYSE:CMS), Northeast Utilities (NYSE:NU), and seven others have issued statements and reports challenging both the plans for an upgraded grid and the proposed way of paying for the upgrade.

Here’s a map of the US electricity transmission grid.

The effort to work on an upgraded grid began with the Energy Policy Act of 2005 (EPAct). One of EPAct’s provisions directed the Federal Energy Regulatory Commission to designate energy transmission corridors that would move electricity generated in remote parts of the country to population centers. The effort petered out because it was widely disliked to begin with and would have been nearly impossible to implement in the West.

In the East, where distances are shorter, but land for transmission corridors is scarcer and much more expensive, politicians and Eastern utilities feared that wind and solar generation in the West and Midwest would cause them to miss out on the economic windfall that developing clean energy promised.

The immediate proposal under discussion involves building what is called an overlay grid of extra-high voltage lines that would, in effect, be an interstate highway system for transporting electricity from its point of generation to interconnections with local distribution grids and consumers. The plan calls for a network of 765,000 kV lines at a cost of some $100-$220 billion. Currently there are no such high-voltage lines in the US. A completely upgraded US electricity grid, including the extra-high voltage lines, could top $1 trillion.

The IOUs and their allies argue that transmission lines that merely pass through a state or region without feeding electricity to that area should not be paid for by consumers in that area. If this principle is adopted, it would have a chilling effect on the development of alternative energy-generation in the remote parts of the country where the wind blows most steadily and the sun shines most consistently. Because there aren’t enough consumers in that area to absorb all the additional planned generation, it is likely that alt energy projects would be scaled back.

The IOUs also have an ulterior motive. If alternative power sources are subsidized by everyone, it threatens what is essentially a captive market for the coal-, gas-, and nuclear-fired plants these companies have either built or have on the drawing boards. The IOUs argue that subsidized transmission distorts the price signals that are inherent in rates.

In a letter to Senators Harry Reid and Mitch McConnell, a group of utility districts argue, “Transmission planning and cost allocation must support price transparency and the access to accurate cost and price information so that the power purchasers can make informed resource purchase decisions and consumers do not end up paying more than necessary.” The letter goes on, “If developers and potential customers of the new resources don’t have to pay the costs of transmission associated with their decisions, the price signal is lost and distant resources will have an unwarranted price advantage over local, less costly ways of getting to the cleaner energy future we all desire.”

The utility districts, like the IOUs, have an ulterior motive. If clean energy can be supplied at a competitive cost, the utility districts are likely to face competition they have not had to deal with in the past.

The battle is already being waged in California, where a June ballot initiative would require that residents approve by a two-thirds majority any attempt by a public agency to enter the retail power business. The initiative, Proposition 16, responds to a law passed in California in 2002 that allows the establishment of a community choice aggregation program that could get public funding to enter the retail power market.

The sole sponsor of Proposition 16 is PG&E Corp. (NYSE:PCG), which has spent more than $30 million so far in support of Prop 16. If the proposition is approved, it will be virtually impossible for a local government to purchase electricity from a non-PG&E source.

The argument for spreading the cost of grid upgrades around to all consumers is also laced with special interests. Sunny states like Nevada and Arizona, and windy states like the Dakotas could generate enough electricity to power the US essentially forever. Politicians from those states know, however, that without a way to get that power to market, development will never happen.

Development means jobs and wealth and re-election, exactly what the Eastern politicians feared. A new wrinkle has developed, though, that might change the debate slightly. When Interior Secretary Ken Salazar last week approved the Cape Wind Project offshore of Massachusetts, the door was opened to similar development off the Atlantic coast. If that should happen, the wealth would get spread around more, and opposition from East coast politicians and utilities could subside.

That still leaves the IOUs and many utility districts opposed to spreading out the costs, but that issue could be addressed in a variety of ways that would satisfy everyone. That’s what politics is for, after all.

The pressing need in the US for a robust, modern grid that can reliably get electricity to where it’s needed does not admit an easy or cheap solution. The solution will cost billions of dollars and take years to build. Government policy, and money, have been driving what little has been done so far. But the most fundamental question is the one now being asked: do we let government policy drive development or is listening to the market both fairer and more likely to lead to the desired result?

Paul Ausick

Oil Explorers Drill on, Unfazed by BP’s Gulf of Mexico Spill

By Joe Carroll

May 4 (Bloomberg) — Offshore oil producers such as ConocoPhillips and Anadarko Petroleum Corp. are pressing ahead with drilling even as BP Plc struggles to contain a Gulf of Mexico spill that may cost $12.5 billion to clean up.

The Gulf remains attractive to explorers because deep-water discoveries there have averaged almost four times the global average during the past decade, Frank J. Patterson, Anadarko’s vice president for international development, said yesterday at the Offshore Technology Conference in Houston.

BP, the biggest oil producer in the Gulf, deployed boats, remote-controlled robots, booms and detergents to combat a growing oil slick triggered by an April 20 rig explosion that killed 11 people and resulted in a leak from a subsea well. The spill threatens to disrupt fishing and tourism from Louisiana to Florida and may cost BP and its partners in the well $12.5 billion, according to analysts at Sanford C. Bernstein Ltd.

At the Houston conference, the world’s biggest offshore- drilling convention, the spill didn’t temper producers’ enthusiasm over offshore oil prospects.

“It’s remarkable how many deep-water plays around the world have been lightly explored or not looked at at all,” said Larry Archibald, Houston-based ConocoPhillips’s senior vice president for exploration. “We’ve got an increased focus on high-impact wildcat wells.”

Stricter Regulations

Energy companies in search of untapped fields holding millions of barrels of crude have few alternatives to rock formations hidden beneath thousands of feet of water, said Robert Fryklund, vice president of industry relations at energy- consulting firm IHS Inc.

“Will we continue to invest in the deep water? Yes,” Dave Lawrence, executive vice president for exploration at Royal Dutch Shell Plc’s U.S. unit, said at the conference.

Tougher U.S. drilling regulations that may result from the BP incident probably won’t dissuade producers from expanding into deeper seas, Fryklund said.

“The event that happened is a tragedy, and there will be changes going forward,” Fryklund said yesterday at the conference.

ConocoPhillips is amassing deep-water exploration leases as far afield as Bangladesh, Archibald said. The company is negotiating production-sharing agreements with the South Asian nation to cover those tracts, he said.

Focused on Exploration

Such deep-water prospects will fuel ConocoPhillips’s exploration program for decades, Archibald said. Four years after its $36.1 billion purchase of U.S. natural-gas producer Burlington Resources Inc., ConocoPhillips has decided the best way to increase its resource base is through exploration, rather than acquisitions, he said.

About 70 percent of the world’s oil discoveries in the past two years have been offshore, Fryklund said. With global demand expected to rise as much as 18 percent in the next 10 years, energy producers will have no choice but to exploit crude deposits under thousands of feet of water and hundreds of miles from shore, he said.

“There’s still lots of running room in deep-water plays,” ConocoPhillips’s Archibald said.

Tony Hayward, chief executive officer at London-based BP, said in a May 2 interview that the future of offshore drilling in the Gulf may depend on how well his company handles the spill and its aftermath.

Shares Drop

During a May 2 visit to Louisiana, President Barack Obama said the slick may become “an unprecedented environmental disaster.”

California Governor Arnold Schwarzenegger no longer supports a plan to allow limited drilling for oil off the state’s coast because of the Gulf of Mexico spill, Aaron McLear, his spokesman, said yesterday.

Schwarzenegger had advocated letting Plains Exploration & Production Co., operator of four California offshore oil platforms, expand into waters near Santa Barbara.

BP has lost almost $23 billion in market value since the Transocean Ltd. rig it was leasing, the Deepwater Horizon, exploded and caught fire above the Macondo well 41 miles (66 kilometers) from the Louisiana coast. BP has a 65 percent stake in the well, and Anadarko has a 25 percent interest.

Anadarko, based in The Woodlands, Texas, has declined 13 percent since the BP spill. Geneva-based Transocean, the world’s largest offshore oil driller, has tumbled 21 percent.

Pressure-Control Device

Cameron International Corp., the Houston-based maker of a subsea pressure-control device designed to prevent a blowout on the Deepwater Horizon, fell 13 percent the day after its role in the drilling project was reported by Bloomberg.

Anadarko, which operates the biggest floating natural-gas platform in the Gulf, boosted its deep-water exploration prospects by 25 percent in 2009 and expects to add to that inventory this year, Patterson said.

“This industry tends to withdraw during times of economic upheaval and during times when you’ve had a bad run of exploration,” Patterson said. “You have to have an exploration focus if you’re going to be successful.”

Cobalt International Energy Inc., the oil explorer whose largest shareholders are Goldman Sachs Group Inc. and a First Reserve Corp. fund, plans to drill 10 exploration wells in the Gulf of Mexico during the next two years and four or five such wells in West Africa, said Jim Farnsworth, chief exploration officer.

Since its founding four years ago, Cobalt has accrued 200 exploration leases in the Gulf and four in West Africa, all of them in deep water, Farnsworth said.

“If you don’t do it well, you should get out of it,” Farnsworth said of deep-water exploration.