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

 

 

 

 

More articles by:

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

Weekend Edition
November 24, 2017
Friday - Sunday
Jonathan Cook
From an Open Internet, Back to the Dark Ages
Linda Pentz Gunter
A Radioactive Plume That’s Clouded in Secrecy
Jeffrey St. Clair
The Fires This Time
Nick Alexandrov
Birth of a Nation
Vijay Prashad
Puerto Rico: Ruined Infrastructure and a Refugee Crisis
Peter Montague
Men in Power Abusing Women – What a Surprise!
Kristine Mattis
Slaves and Bulldozers, Plutocrats and Widgets
Pete Dolack
Climate Summit’s Solution to Global Warming: More Talking
Mike Whitney
ISIS Last Stand; End Times for the Caliphate
Robert Hunziker
Fukushima Darkness, Part Two
James Munson
Does Censoring Undemocratic Voices Make For Better Democracy?
Brian Cloughley
The Influence of Israel on Britain
Jason Hickel
Averting the Apocalypse: Lessons From Costa Rica
Pepe Escobar
How Turkey, Iran, Russia and India are playing the New Silk Roads
Jan Oberg
Why is Google’s Eric Schmidt So Afraid?
Ezra Rosser
Pushing Back Against the Criminalization of Poverty
Kathy Kelly
The Quality of Mercy
Myles Hoenig
A Ray Moore Win Could be a Hidden Gift to Progressives
Gerry Brown
Myanmar Conflict: Geopolitical Food Chain
Matthew Stevenson
Into Africa: Robert Redford’s Big Game in Nairobi
Katrina Kozarek
Venezuela’s Communes: a Great Social Achievement
Zoltan Grossman
Olympia Train Blockade Again Hits the Achilles Heel of the Fracking Industry
Binoy Kampmark
History, Law and Ratko Mladić
Tommy Raskin
Why Must We Sanction Russia?
Bob Lord
Trump’s Tax Plan Will Cost a Lot More Than Advertised
Ralph Nader
National Democratic Party – Pole Vaulting Back into Place
Julian Vigo
If Sexual Harassment and Assault Were Treated Like Terrorism
Russell Mokhiber
Still Blowing Smoke for Big Tobacco: John Boehner and College Ethics
Louis Proyect
The Witchfinders
Ted Rall
Sexual Harassment and the End of Team Politics
Anna Meyer
Your Tax Dollars are Funding GMO Propaganda
Barbara Nimri Aziz
An Alleged Communist and Prostitute in Nepal’s Grade Ten Schoolbooks!
Myles Hoenig
A Ray Moore Win Could be a Hidden Gift to Progressives
Graham Peebles
What Price Humanity? Systemic Injustice, Human Suffering
Kim C. Domenico
To Not Walk Away: the Challenge of Compassion in the Neoliberal World
Kollibri terre Sonnenblume
Giving Thanks for Our Occupation of America?
Christy Rodgers
The First Thanksgiving
Charles R. Larson
Review: Ta-Nehisi Coates’ “We Were Eight Years in Power”
David Yearsley
On the Road to Rochester, By Bike
November 23, 2017
Kenneth Surin
Discussing Trump Abroad
Jay Moore
The Failure of Reconstruction and Its Consequences
Jeffrey St. Clair - Alexander Cockburn
Trout and Ethnic Cleansing
John W. Whitehead
Don’t Just Give Thanks, Pay It Forward One Act of Kindness at a Time
Chris Zinda
Zinke’s Reorganization of the BLM Will Continue Killing Babies
David Krieger
Progress Toward Nuclear Weapons Abolition
FacebookTwitterGoogle+RedditEmail