Financial Crisis 102: What’s this about a bail out? I thought we couldn’t bail out a dead planet?

Written by Becky Tarbotton

Topics: Coal, Finance

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In my last post I mentioned the $700 billion of taxpayers money that the government is considering contributing to bailing out Wall Street. It’s a bad deal, no question about it. The proposal amounts to a blank check being written to the very institutions that have gotten us into this mess in the first place, with no transparency or accountability and the assumption of all their risky investments by us, the taxpayer. There are no conditions attached to the proposed bailout such as oh, I don’t know – the usual things that people who provide capital are entitled to like a share in ownership.

Meanwhile, as we taxpayers are all staring gloomily down the gullet of worthless mortgage backed securities, the banks will be taking their new-found solvency, their intact oversized pay packets and busily stoking the flames of another crisis: the climate crisis.

The credit crisis and the climate crisis share more than just a common term (though there is no question that both are crises of epic proportions). They are also both, at their root, the result of a failure to regulate and an outgrowth of unfettered risky investments.

Had there been a modicum of effective government oversight guiding the investment banking industry during the boom years, it would not have been able to expand exponentially on financial instruments as worthless as hot air simply to feed the coffers of overpaid bankers. Likewise, if there were strong government regulation limiting greenhouse gas emissions, banks would not have sunk billions and billions of dollars into coal, oil and gas.

Without any oversight, the financial sector has done what it does best – made money. And when it all comes crumbling down, whether it be the credit crisis OR the climate crisis – it is ordinary people who are impacted the most and homes lost, whether by a category five hurricane or a financial tsunami.

Coal plants and oil expansion are toxic investments for the climate, people and the planet, which should, by itself, make them risky no-go investments for bankers. But the absence of effective climate change regulation means the banks can continue to invest as irresponsibly as regards the climate system as they did with mortgages, putting short term personal greed ahead of the public trust and shifting the burdens to the taxpayer of the huge decommissioning and clean up costs for the carbon-intensive infrastructure they financed and profited from.

Renewable energy by contrast is dropping rapidly in cost. In fact, according to Scientific American with an investment of just $420 billion over the next 40 years, we could completely replace our existing energy infrastructure with renewable energy and energy efficiency.

That’s less money than the Bush administration is proposing that we spend in nine months on bailing out Wall Street from the credit crisis while the banks continue to throw good money after bad by continuing to invest in risky carbon intensive projects. And while you may be able to bail out failing banks (even if you shouldn’t), there is no bail out for a dead planet.

2 Comments For This Post I'd Love to Hear Yours!

  1. Scott Baker says:

    The president will have to assume FDR-like powers to solve the derivative collapse.

    He should declare all derivatives placed outside of legally regulated markets (90% of them) null and void. These “bets” – worth $180 trillion according the U.S. Office of the Comptroller of the Currency in America alone, and up to $450 trillion worldwide – could not have been made in regulated markets, because the players had insufficient collateral.

    If the parties object to the elimination of their derivative bets, they should be reminded of the penalty for fraud; it is inconceivable they did not know they were establishing positions far beyond their ability to repay.

    For every buyer there is a seller, so the amounts lost would zero out and no party would gain an advantage. We would just get to reset the clock. This is as fair as things can be made, given where we are.

    What is causing the panic in the markets right now is the realization that the losers have insufficient money to pay the winners. The domino effect of multiple collapses cannot be stemmed by any government, even by running the printing press overtime. The only solution is to wipe the underlying derivatives off the books and ensure these bets are never made again by creating laws to send those who make them in the future to jail.

  2. Alan (Scotland) says:

    This is one of the first bits of sane thinking i have heard about this whole global recession. All anybody seems to be talking about is getting things back to normal (boom) when we should be talking about how to sort out the terrible system (lack off) that got us into this mess. I keep thinking of the social aspect of these bail outs, the governments of the world are getting the poor (tax payers) to guarantee the rich stay rich. Am i the only one who thinks we should let them and the whole corrupt system fail, then bring up everyone who contributed up on charges and have a modern day Nuremberg scale trial. There is no point fixing an industry/system that is so inherently corrupt as the banking or financial sector.

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