[OPE] Environment with derivatives

To get this also off my desk, Blythe Masters (credited as the inventor of modern-style credit default swaps in 1995, she's not Jewish as far as I know) plainly told the Senate:

For the private markets to most effectively address the problem of climate change, greenhouse gas emissions, which practitioners refer to as carbon, must have a price. http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=7b637e60-0d4d-4982-ae01-6a2f4f304288

A California berry farmer, Jim Cochran, however queries:

Nobody seems to be asking the question: is there a relationship between the accelerating consumption of carbon resources and the accelerating "velocity" of the credit markets?
http://www.columbia.org/pdf_files/rocfund14.pdf

Out of this you get an environmentalist argument for austerity - we cannot afford to keep consuming tomorrow's wealth today on credit, because it stuffs up the environment. Better no berries, then? I'd regret that, I do love them berries. Last week I witnessed a solitary woman capsizing with a carrier bicycle containing two kids, who cried some. Had to think of Blythe.

A socialist however would pose the question: who really pays for the crisis? More specifically, who pays the price for insuring the environmental risk? One thing you can be sure of, a whole bunch of people are going to keep consuming like there's no tomorrow anyway, they have to do something with all their funds. The advantages of the markets devolve on those with a strong bargaining position, and the disadvantages devolve on the weak. A "general" cost-benefit analysis will not reveal this, because its accounts do not reveal who exactly gets the benefits, and who is burdened with the costs.

You might argue, the environment is a kind of "off-balance sheet item".

Jurriaan

PS - "A credit default swap is a contract under which two parties agree to isolate and trade the credit risk of at least one third-party. Under a credit default swap agreement, a protection buyer pays a periodic fee to a protection seller in exchange for a payment by the seller in the event of default in the reference entity. When a credit event is triggered, the protection seller either takes delivery of the defaulted bond for the par value (physical settlement) or pays the protection buyer the difference between the par value and recovery value of the bond (cash settlement). Basically credit default swaps are insurance policies, as they can be used by debt owners to hedge, or insure against default on a loan. However, because there is no requirement to actually hold any asset or suffer a loss, credit default swaps can be used to speculate on changes in credit spreads." http://www.businessspectator.com.au/bs.nsf/Article/Credit-default-swap-vertigo-C3S5W?OpenDocument

If I trust in you,
oh please
Don't run and hide
If I love you too,
oh please
Don't hurt my pride like her
'cause I couldn't stand the pain
And I, would be sad if our new love
was in vain
So I hope you see,
that I
Would love to love you
And that she
will cry
When she learns we are two
cause I couldn't stand the pain
and I
would be sad if our new love
was in vain

- The Beatles, "If I Fell"

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Received on Tue Oct 14 16:45:08 2008