FacebookTwitterGoogle+RedditEmail

Bailouts and the New Math

by ALAN FARAGO

The US Treasury is drawing the line on taxpayer bailouts, depending if a particular supplicant is part of the economic web that represents “systemic risk”.

So, Citigroup is “too big to fail” today. Who can forget only a few years ago the experts judged gigantism to “disperse risk”, or, that the experts now evaluating what represents systemic risk also judged the late, great asset bubbles to be acceptable. A decade ago I worked at a division of Citigroup; it was the failure of a senior manager to adequately explain the risks inherent in mortgage backed securities that triggered my personal systemic risk about the retail side of wealth management.

I was curious about securitized debt tied to housing because the suburban landscape of Florida didn’t add up. Environmentalists have always groused about “hidden subsidies” of sprawl; the inadequate infrastructure, badly planned schools and wetlands protection. What environmentalists failed to do was extend those overt hidden subsidies to the covert ones, concealed in tranches of mortgage backed securities and insurance derivatives tied to them.

To give credit where credit is due, environmentalists can’t be necessarily faulted for failing to pick up the trail of crumbs leading from devastated ecosystems to production home builders to local and state legislatures and Congress, to the White House and Wall Street. For the most part, environmentalists have been running from one leak in the dike to another, throwing up sandbags against the force of wealth creation based on securitization.

It is now clear that the entire formula for economic growth based on the housing asset bubble depended on mispricing risk. The curtain has been pulled back from trillions earned by Wall Street and its supply chain. Our economic and environmental crises are identical twins.

The same mispricing of risk is at work in a report headed to the Florida Public Service Commission, to Florida’s Governor Charlie Crist and the Legislature on the cost of energy alternatives (“Solar power costlier for Florida than nuclear power, report finds”, The Miami Herald, Nov. 26, 2008).

A representative of the environment– Eric Draper, deputy director of Florida Audubon, is quoted by The Miami Herald saying he “wishes he had more time to read the document.” His comment suggests that complexity needs more time to unwind. The report’s conclusion: that solar is considerably more costly than new nuclear power and natural gas.

I haven’t read the report; but the notion of “complexity” defying understanding has a very familiar ring.

Figuring out the relative cost of renewables is largely a matter of assessing risk; the order of calculations at the heart of what dragged the world economy into a chasm. What financial managers did– from former Fed Chief Alan Greenspan to former Treasury Secretary Robert Rubin– was to wrap themselves and everyone around them in an invisible cloak of complexity. That is how my branch manager, eight years ago, rebuffed questions about mortgage backed securities– suggesting, ‘Don’t worry. We know how to calculate risk.’

Let’s cut to the chase: there are only two relevant questions about pricing alternative energy; first, what is the cost of not converting from fossil fuels as soon as possible, and second, what is the cost of disposing radioactive fuels from nuclear power? The answer in the first case is unlimited risk. In the second case is too expensive to calculate.

The new arithmetic of bailouts, now said to total more than $7 trillion, attempts to zero out the risk to our economy from miscalculations by Wall Street and its supply chain. When it comes to assessing future risk in energy policies, no one should embrace bad choices because the arithmetic is too hard to understand. Been there, done that.

ALAN FARAGO, who writes on the environment and politics from Coral Gables, Florida, and can be reached at alanfarago@yahoo.com

 

 

 

 

Alan Farago is president of Friends of the Everglades and can be reached at afarago@bellsouth.net

More articles by:
May 25, 2016
Eric Draitser
Obama in Hiroshima: A Case Study in Hypocrisy
Ryan Mallett-Outtrim
Does Venezuela’s Crisis Prove Socialism Doesn’t Work?
Dan Arel
The Socialist Revolution Beyond Sanders and the Democratic Party
Marc Estrin
Cocky-Doody Politics and World Affairs
Sam Husseini
Layers of Islamophobia: Do Liberals Care That Hillary Returned “Muslim Money”?
Susan Babbitt
Invisible in Life, Invisible in Death: How Information Becomes Useless
Mel Gurtov
Hillary’s Cowgirl Diplomacy?
Kathy Kelly
Hammering for Peace
Dick Reavis
The Impeachment of Donald Trump
Wahid Azal
Behind the Politics of a Current Brouhaha in Iran: an Ex-President Ayatollah’s Daughter and the Baha’is
Jesse Jackson
Obama Must Recommit to Eliminating Nuclear Arms
Colin Todhunter
From the Green Revolution to GMOs: Living in the Shadow of Global Agribusiness
Binoy Kampmark
Turkey as Terror: the Role of Ankara in the Brexit Referendum
Dave Lindorff
72-Year-Old Fringe Left Candidate Wins Presidency in Austrian Run-Off Election
May 24, 2016
Sharmini Peries - Michael Hudson
The Financial Invasion of Greece
Jonathan Cook
Religious Zealots Ready for Takeover of Israeli Army
Ted Rall
Why I Am #NeverHillary
Mari Jo Buhle – Paul Buhle
Television Meets History
Robert Hunziker
Troika Heat-Seeking Missile Destroys Greece
Judy Gumbo
May Day Road Trip: 1968 – 2016
Colin Todhunter
Cheerleader for US Aggression, Pushing the World to the Nuclear Brink
Jeremy Brecher
This is What Insurgency Looks Like
Jonathan Latham
Unsafe at Any Dose: Chemical Safety Failures from DDT to Glyphosate to BPA
Binoy Kampmark
Suing Russia: Litigating over MH17
Dave Lindorff
Europe, the US and the Politics of Pissing and Being Pissed
Matt Peppe
Cashing In at the Race Track While Facing Charges of “Abusive” Lending Practices
Gilbert Mercier
If Bernie Sanders Is Real, He Will Run as an Independent
Peter Bohmer
A Year Later! The Struggle for Justice Continues!
Dave Welsh
Police Chief Fired in Victory for the Frisco 500
May 23, 2016
Conn Hallinan
European Union: a House Divided
Paul Buhle
Labor’s Sell-Out and the Sanders Campaign
Uri Avnery
Israeli Weimar: It Can Happen Here
John Stauber
Why Bernie was Busted From the Beginning
James Bovard
Obama’s Biggest Corruption Charade
Joseph Mangano – Janette D. Sherman
Indian Point Nuclear Plant: It Doesn’t Take a Meltdown to Harm Local Residents
Desiree Hellegers
“Energy Without Injury”: From Redwood Summer to Break Free via Occupy Wall Street
Lawrence Davidson
The Unraveling of Zionism?
Patrick Cockburn
Why Visa Waivers are Dangerous for Turks
Robert Koehler
Rethinking Criminal Justice
Lawrence Wittner
The Return of Democratic Socialism
Ha-Joon Chang
What Britain Forgot: Making Things Matters
John V. Walsh
Only Donald Trump Raises Five “Fundamental and Urgent” Foreign Policy Questions: Stephen F. Cohen Bemoans MSM’s Dismissal of Trump’s Queries
Andrew Stewart
The Occupation of the American Mind: a Film That Palestinians Deserve
Nyla Ali Khan
The Vulnerable Repositories of Honor in Kashmir
Weekend Edition
May 20, 2016
Friday - Sunday
Rob Urie
Hillary Clinton and Political Violence
FacebookTwitterGoogle+RedditEmail