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Rassembler 14 Juillet

It’s been a darn good recession for Goldman Sachs.

Just six months after reporting its first loss as a public company, the New York City-based firm delivered its second straight period of better-than-expected results, this time earning $3.44 billion, or $4.93 a share for the second quarter. . . .

Driving much of the firm’s latest performance was its fixed income business, which also deals in trading currencies and commodities. Net revenue in the division surged 186% from a year ago to $6.8 billion.

(“Goldman Sachs scores big in latest quarter,” CNN Money, July 14) Probably knowing that Goldman, which was primarily responsible for the CDO bubble as anyone, was announcing earnings today, Rollling Stone published an explosive hatchet job on Goldman yesterday. Just in case you thought hyperbole was dead, the lead-in goes like this: “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.” (This is probably not true since Goldman was always a distant third or fourth player up until the late 60′s).

Despite the hyperbole and the decidedly uneconomic use of truck driver language (I long ago realized the anaylitcal poverty of words like f#%! and a#%hole) I’m not as inclined as Justin Fox to dismiss much of Taibbi’s discusion. (And congrats to Justin and Barbara for being named by Wall Street Journal as one of the top 25 blogs on the economy — quite a feat since every economist, non-economist, and dogs named Doug are blogging on the economy now!) While Taibbi makes little headway demonstrating that oils futures trading drove up prices — the only way to prove this is to show conclusively that speculators were hoarding oil, but his own accounting of the supply and demand of oil gives this the lie — he is more or less correct (though he exaggerates more than Bill O’Reilly or Ann Coulter) in the outlines of Goldman’s role in the Internet IPO bubble and the housing market.

Which makes his discussion of Goldman’s role in bringing about cap-and-trade carbone legislation must reading for anyone on any side of that fence. Let me break precedent here and state my policy preference clearly: I am an environmentalist and am opposed completely to carbon cap-and-trade. We must do something to regulate carbon emissions and that something is to increasingly tax carbon use. Plain and simple. Cap and trade is, in my view, exactly the same as taxing consumers and utilities for carbon use except for one tiny detail . . . all that money goes into the hands of private investors, rather than roads, schools, national defense, and sundry other useful government programs. Here’s Taibbi:

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

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

I have said in many places in this blog that the bulk of government “regulation” is more often than not put into place to serve the financial interests of private interests. Cap-and-trade turns carbon offsets into something like tradeable commodities, but since government will be demanding lower carbon use year-in and year-out, these offsets are guaranteed to gain in value. Which explains why firms, such as Goldman and Al Gore’s new investment firm, are buying these things up already.

If we allow Goldman Sachs to be part of a carbon taxation system — and that is what cap-and-trade is — then you can be sure that a significant percentage of that tax will be used to buy big houses in the Hamptons and vacations to Majorca.

I rarely let my political views spill out here, but I have one unbendable belief about taxes. If you’re going to tax, tax. It should be open, honest, accountable, and countable (that is, anyone paying taxes should easily be able to determine how much they’re paying in taxes — one reason I hate sales tax).

If we’re going limit carbon emissions by raising the cost, then the smartest, quickest, most accountable way to do that is to tax excess carbon emissions in a way that lets every person know how much they’re “paying.” And, don’t you think energy providers will more quickly upgrade facilities if their consumers know precisely how much they’re paying each month in a “carbon tax”? And thus putting pressure on the utility to get that tax lower? On the other hand, with cap-and-trade, consumers will have no idea how much they’re paying in carbon offsets.

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