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Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade

George Washington's picture




 

I have written hundreds of articles documenting that unregulated, speculative derivatives (especially credit default swaps) are a primary cause of the economic crisis.

And I have pointed out that (1) the giant banks will make a killing on carbon trading, (2) while the leading scientist
crusading against global warming says it won't work, and (3) there is a
very high probability of massive fraud and insider trading in the
carbon trading markets.

Now, Bloomberg notes that the carbon trading scheme will be centered around derivatives:

The
banks are preparing to do with carbon what they’ve done before: design
and market derivatives contracts that will help client companies hedge
their price risk over the long term. They’re also ready to sell
carbon-related financial products to outside investors.

 

[Blythe]
Masters says banks must be allowed to lead the way if a mandatory
carbon-trading system is going to help save the planet at the lowest
possible cost. And derivatives related to carbon must be part of the
mix, she says. Derivatives are securities whose value is derived from
the value of an underlying commodity -- in this case, CO2 and other
greenhouse gases...

 

 

Who is Blythe Masters?

She is the JP Morgan employee who invented credit
default swaps, and is now heading JPM's carbon trading efforts. As
Bloomberg notes (this and all remaining quotes are from the
above-linked Bloomberg article):

Masters, 40, oversees the New York bank’s environmental businesses as the firm’s global head of commodities...

 

As
a young London banker in the early 1990s, Masters was part of
JPMorgan’s team developing ideas for transferring risk to third
parties. She went on to manage credit risk for JPMorgan’s investment
bank.

Among the credit derivatives that grew from the bank’s early efforts was the credit-default swap.

Some in congress are fighting against carbon derivatives:

“People
are going to be cutting up carbon futures, and we’ll be in trouble,”
says Maria Cantwell, a Democratic senator from Washington state. “You
can’t stay ahead of the next tool they’re going to create.”

 

Cantwell,
51, proposed in November that U.S. state governments be given the right
to ban unregulated financial products. “The derivatives market has done
so much damage to our economy and is nothing more than a
very-high-stakes casino -- except that casinos have to abide by
regulations,” she wrote in a press release...

However, Congress may cave in to industry pressure to let carbon derivatives trade over-the-counter:

The
House cap-and-trade bill bans OTC derivatives, requiring that all
carbon trading be done on exchanges...The bankers say such a ban would
be a mistake...The banks and companies may get their way on carbon
derivatives in separate legislation now being worked out in Congress...

Financial experts are also opposed to cap and trade:

Even
George Soros, the billionaire hedge fund operator, says money managers
would find ways to manipulate cap-and-trade markets. “The system can be
gamed,” Soros, 79, remarked at a London School of Economics seminar in
July. “That’s why financial types like me like it -- because there are
financial opportunities”...

 

Hedge fund manager Michael Masters,
founder of Masters Capital Management LLC, based in St. Croix, U.S.
Virgin Islands [and unrelated to Blythe Masters] says speculators will
end up controlling U.S. carbon prices, and their participation could
trigger the same type of boom-and-bust cycles that have buffeted other
commodities...

 

The hedge fund manager says that banks will
attempt to inflate the carbon market by recruiting investors from hedge
funds and pension funds.

 

“Wall Street is going to
sell it as an investment product to people that have nothing to do with
carbon,” he says. “Then suddenly investment managers are dominating the
asset class, and nothing is related to actual supply and demand. We
have seen this movie before.”

Indeed, as I have previously pointed out, many environmentalists are opposed to cap and trade as well. For example:

Michelle Chan, a senior policy analyst in San Francisco for Friends of the Earth, isn’t convinced.

 

“Should
we really create a new $2 trillion market when we haven’t yet finished
the job of revamping and testing new financial regulation?” she asks.
Chan says that, given their recent history, the banks’ ability to turn
climate change into a new commodities market should be curbed...

 

“What
we have just been woken up to in the credit crisis -- to a jarring and
shocking degree -- is what happens in the real world,” she says...

 

Friends
of the Earth’s Chan is working hard to prevent the banks from adding
carbon to their repertoire. She titled a March FOE report “Subprime
Carbon?” In testimony on Capitol Hill, she warned, “Wall Street won’t
just be brokering in plain carbon derivatives -- they’ll get creative.”

Yes,
they'll get creative, and we have seen this movie before ...an
inadequately-regulated carbon derivatives boom will destabilize the
economy and lead to another crash.

 

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Tue, 12/08/2009 - 14:08 | 156690 bobby02
bobby02's picture

touche

Tue, 12/08/2009 - 03:34 | 156283 Rick64
Rick64's picture

Well who do you expect to do it? GS? They are busy running the FED and the treasury, HFT, ect..

Tue, 12/08/2009 - 03:26 | 156280 Anonymous
Anonymous's picture

oh. my. ghod.

Tue, 12/08/2009 - 02:48 | 156260 tom a taxpayer
tom a taxpayer's picture

Excerpt's from Crain's website about Blythe Masters:

When Blythe Masters checked into a London hospital to have her baby, she brought a wireless device to get quotes on commodity derivatives. It remained unused.

“Funnily enough, it turned out that being a mother was somewhat more time-consuming than I thought it would be,” Ms. Masters says.

Her passion for trading derivatives has served her well at J.P. Morgan, which she joined in 1991 after she got a degree from Cambridge University.

Ms. Masters made her career early on by recognizing the potential for credit derivatives, hedges that banks use to offset the risk of loan defaults. Despite her youth, she had enough gravitas to convince regulators around the world of the essential soundness of the little-known financial instruments.

Now she heads a team at J.P. Morgan that trades the contracts with all the world’s largest banks and other financial institutions, making her a rare commodity on Wall Street: a high-ranking, powerful female. Industrywide, the derivatives contracts she fostered total $4 trillion a year.

Ms. Masters’ hard-charging personal style once alienated others at J.P. Morgan, but she has become a smooth executive who inspires with her passion. She has gone through many other changes in the 10 years since her daughter was born. She moved from London to Manhattan, got a divorce and injected balance into her life.

Although she has mellowed, she hasn’t lost her zeal. In addition to overseeing the trading of credit derivatives, she sets industry concentration caps and establishes other limits for the bank’s global loan portfolio. To unwind, she competes in serious amateur horse shows.

http://mycrains.crainsnewyork.com/40under40/profiles/2004/228

Tue, 12/08/2009 - 15:11 | 156803 Anonymous
Anonymous's picture

Well, there y'go . . . . she was only doin' her job . . . "befehle sind befehle"

Tue, 12/08/2009 - 02:48 | 156259 Comrade de Chaos
Comrade de Chaos's picture

we all are traders:

http://www.census.gov/compendia/statab/tables/09s1169.pdf

 

trading, tradin, tradin 

Tue, 12/08/2009 - 02:40 | 156254 Anonymous
Anonymous's picture

"ban unregulated financial products. "

Now *THAT* is a good idea.

Tue, 12/08/2009 - 02:07 | 156242 rayen36
rayen36's picture

Is she hot?

Tue, 12/08/2009 - 14:36 | 156734 DaveyJones
DaveyJones's picture

Is she hot? No but her afterlife is

Tue, 12/08/2009 - 02:41 | 156255 George Washington
Tue, 12/08/2009 - 03:10 | 156271 Anonymous
Anonymous's picture

NO

Tue, 12/08/2009 - 02:03 | 156240 delacroix
delacroix's picture

made me think of the guy, who got a ticket, for farting in a police car

Tue, 12/08/2009 - 02:36 | 156251 Rollerball
Rollerball's picture

LOL +10

Tue, 12/08/2009 - 01:53 | 156236 George Washington
George Washington's picture

For those who are not that familiar with credit default swaps, the version at my blog has a fuller discussion:

Woman Who Invented Credit Default Swaps is One of the Key Architects of Carbon Derivatives, Which Would Be at the Very CENTER of Cap and Trade

 

Tue, 12/08/2009 - 21:12 | 157364 sgt_doom
sgt_doom's picture

Outstanding blog, GW, and since that GAO study explaining it is nothing more than a financial fraud and does little (actually NOTHING) to counter pollution, and as I, the intrepid sgt_doom am against this latest securitization scam, as is Peter Defazio, Dennis (super K) Kucinich, those Greenpeace people, and that husband-and-wife attorney team from EPA (carbonfees.org) as well as Dr. James Hansen (and he certainly ain't no DENIER!), it is voted down by mass opinion!

And to review:  Climate Exchange PLC (holding company registered in Isle of Man) financed by Goldman Sachs, Morgan Stanley and the oil cartel. (And it owns all those other climate exchanges, from Chicago to Tienjin.)

The clearing house will be ICE US Trust (which is owned by ICE, Goldman Sachs, JPMorgan, Morgan Stanley, Markit Group, et al.)

ICE, InterContinental Exchange, is owned by Goldman Sachs, Morgan Stanley and the oil cartel).

Markit Group was originally finaced (and probably still covertly owned by) Goldman Sachs, JPMorgan Chase, Citigroup and B of A.

And we all know who owns the DTCC, right?

Now that's the big picture.

 

Tue, 12/08/2009 - 03:25 | 156279 Slewburger
Slewburger's picture

Didn't Kenny Boy come up with this at Enron??

Tue, 12/08/2009 - 14:51 | 156760 George Washington
George Washington's picture

I've heard that rumor, but haven't been able to find a credible link.

Anyone ... Bueller?

Tue, 12/08/2009 - 15:47 | 156851 Apocalypse Now
Apocalypse Now's picture

It's in the movie "Fall of the Republic" in direct questioning of Al Gore by a representative - the Representative said didn't you work with Ken L. on this to set it up - and Al Gore sputtered and stumbled and mumbled and blinked quickly then said something like that was before we learned he was crooked. 

This is the same kind of financial innovation that Enron was up to, no different.

Tue, 12/08/2009 - 15:08 | 156793 lovejoy
lovejoy's picture

I don't know how much Ken Lay knew about cap and trade, but he was definately key in wrestling control of the over the counter market from the CFTC with the Commodity Futures Modernization Act of 2000.

Tue, 12/08/2009 - 01:53 | 156235 digalert
digalert's picture

Have they found anyone to insure these carbon trades? AIG maybe? Could be quite profitable for awhile.

Tue, 12/08/2009 - 01:50 | 156233 Anonymous
Anonymous's picture

Australian Stock Exchange already trading futures and Option contracts on Certified Emission Reductions (CERs) and Australian Emissions Units (AEUs).

http://www.asx.com.au/products/futures/emissions_trading/index.htm

Mon, 12/07/2009 - 23:31 | 156155 anynonmous
anynonmous's picture

and this article from the summer from Bloomberg

Goldman Faces Carbon Market Curbs in Senate Proposals (Update1)

http://www.bloomberg.com/apps/news?pid=20601130&sid=a9qWGysLQ.Cg

Mon, 12/07/2009 - 23:24 | 156118 anynonmous
anynonmous's picture

forgive the link to the Sierra Club

 

JP Morgan Chase CEO Jamie Dimon: Time to Walk the Talk on Coal

 

JPMorgan Chase CEO Jamie Dimon professes profound concern for our future.  He has made numerous statements about how his company supports strong action on global warming. He waxes eloquently about how JP Morgan Chase is committed to investments in clean energy and he wants policy makers to provide leadership on curbing emissions of global warming.    But Sierra Club’s diligent researchers have pulled back the curtain and uncovered that his rhetoric doesn’t match his company’s action.  JPMorgan Chase is pouring billions of dollars into dirty coal plant projects

 

http://sierraclub.typepad.com/compass/2009/08/jp-morgan-chase-ceo-jamie-...

 

and this apparent epiphany

http://www.jpmorganclimatecare.com/about/news/GIIN/

and this

Carbon Acquisition Company Ltd to acquire EcoSecurities Group plc

http://www.jpmorgan.com/cm/cs?pagename=JPM_redesign/JPM_Content_C/Generi...

Mon, 12/07/2009 - 22:43 | 156108 Shameful
Shameful's picture

Sweet!  Confirmation that the carbon scheme will grow the infinite black hole of debt and impoverish anyone!  Why am I overcome with the desire to guzzle vodka till I kill enough brain cells so this trading plan with either make sense or I black out?  Who am I kidding, till I black out.  Even dead drunk this plan doesn't make sense unless you are a banker and raking in the suckers money. 

Tue, 12/08/2009 - 10:35 | 156434 Grifter
Grifter's picture

My family owns a considerable tract of land in western NY, and was just approached by a firm that pools small landowners together so that we can offer up our credits on the CCX in a size that will matter. 

My parents are jumping all over this so they can get an extra couple of $K per year as long as we continue to meet the extensive requirements put forth in the pooling agreement. 

I have been foaming at the mouth trying to convince them that they are ceding control over their property in order to participate in a scheme that will only make GS & the Goracle even more wealthy. 

Tue, 12/08/2009 - 16:27 | 156909 Anonymous
Anonymous's picture

That is one of the problems right there. If you buy credits from, say, a landowner who has acreage with lots a trees, then you are buying the right to pollute while there is nothing offsetting that created pollution. The trees were already there sucking up CO2. Calling this a carbon "offset" is entirely misleading, being there is nothing being offset in this example from before the credit to after the credit, just more legalized pollution. This is a bullshit scam and absolutely ridiculous that it is even considered. However, since this isn't about pollution control and noone cares about anything but money and campaign contributions, I expect it to pass overwhelmingly

Mon, 12/07/2009 - 22:44 | 156104 anynonmous
anynonmous's picture

Testimony of Blythe Masters
JPMorgan Chase & Co.
Senate Agriculture Committee
December 2, 2009

statement

http://216.40.253.202/~usscanf/index.php?option=com_docman&task=doc_down...

video
http://www.senate.gov/fplayers/CommPlayer/commFlashPlayer.cfm?fn=ag12020...

 

Bloomberg

 

Carbon Capitalists Warming to Climate Market Using Derivatives


...That’s because Land Rover, official purveyor of 4x4s to Queen Elizabeth II, is helping Ugandans cut their greenhouse gas emissions with those new stoves.

These two worlds came together in the offices of Blythe Masters at JPMorgan Chase & Co. Masters, 40, oversees the New York bank’s environmental businesses as the firm’s global head of commodities. JPMorgan brokered a deal in 2007 for Land Rover to buy carbon credits from ClimateCare, an Oxford, England-based group that develops energy-efficiency projects around the world. Land Rover, now owned by Mumbai-based Tata Motors Ltd., is using the credits to offset some of the CO2 emissions produced by its vehicles.

http://www.bloomberg.com/apps/news?pid=20601086&sid=aXRBOxU5KT5M

 

and Jamie's favorite website:

http://www.jpmorganclimatecare.com/

Mon, 12/07/2009 - 23:37 | 156161 zeta34
zeta34's picture

None other than Goldman made sizeable acquisitions of private cap and trade companies back in pits of despair in October 2008.  So 1) they won't be regulated; 2) the government will bear massive losses to pay face value to Goldman and 3) Goldman knew with certainty more than a year ago that Cap and Trade would be a reality.

 

Re: #3...probably a lucky guess!

Tue, 12/08/2009 - 14:03 | 156684 Anonymous
Anonymous's picture

Of course GS freakin knew a year ago that Cap & Trade would be a reality. They also knew TARP would be a reality before Paulson went to the White House. They knew because they knew Obama would win? They gareenteed it when they crashed the market one month before the freakin presendential election.

Obama proabably would of won just on his lies about the war. But GS really wanted there investment in Obama guareeteed, and that is why the market was crashed one month before the election. Got it? Good.

Yes Wall St paid for Obama to look the other way while the looting still continues under the guise of "reform." And know this shit about Cap and Trade.

TD why the hell are you still in the game?

Tue, 12/08/2009 - 19:20 | 157175 E pluribus unum
E pluribus unum's picture

Just out of curiosity, why did the markets crash in March 09 after Obama was already inaugurated?

Tue, 12/08/2009 - 11:12 | 156494 Narcolepzzzzzz
Narcolepzzzzzz's picture

Al Gore's Carbon Crusade

The Money and Connections Behind It:

http://docs.google.com/viewer?a=v&q=cache:piOWhBVP0FgJ:www.capitalresear...

Do NOT follow this link or you will be banned from the site!