Marshall Auerbach, "Why BP But Not Wall Street?"
by Marshall Auerbach
Imagine the uproar today in the US (even in oil loving states, such as Louisiana) if BP was involved in the watering down of legislation to govern energy policy and offshore drilling. Oh wait, that did happen...under the Bush Administration, where he drafted Enron's Ken Lay precisely for this purpose. We are reaping the consequences of that perverse executive action, much as I suspect that in a few years hence, we will be reaping the consequences of our failed financial regulatory "reforms" that do nothing to effect structural change and prevent a recurrence of the current crisis.
The other severe problem is nonprime mortgage paper (where losses range from 50 to 85 cents on the dollar). These losses are not being recognized. Worse, they are being hidden by the Fed and dumped on Fannie Mae and Freddie Mac while the politicians and Treasury declare that we "resolved" the greatest financial crisis in 80 years at virtually no cost to the taxpayer. We've now had a number of narratives to that effect, no doubt spun aggressively by the Geithner Treasury: Joshua Green's "Inside Man" and John Heilemann's "Obama is from Mars, Wall Street is from Venus" are two obvious examples of this genre which spring to mind.
As awful as the BP spill is, the magnitude of its regulatory failure is dwarfed by what has happened on Wall Street over the past 30 years. The same people who have presided over the mess are still in power. There have been zero criminal charges. Perhaps the criminal charges will come. In the meantime, Obama has an opportunity to harness public anger in a more productive direction than has been the case with financial or health care reform. There is an alternative to our addiction to oil, but as long as deficit hawks dissuade us from supporting government-funded initiatives needed to strike out on another energy path, we will not realize it.
In addition to my work in finance, I happen to do a lot of work in clean tech and come across endless science programs on alternative energies. There is no magic bullet, but there are technologies in existence today that can reduce our addiction to oil. But most require a massive government push, on a scale along the lines of the Manhattan Project. The concentrated effort of the Manhattan Project produced a bomb perhaps decades earlier than it would have otherwise, in a mere few years, literally from theoretical scratch. The government diverted 11% of the nation's electric power to produce those few handfuls of uranium and plutonium for the first bombs. The facilities were the biggest ever built by mankind. The government did it and it worked.
The Manhattan Project was done in secret, which I do not advocate. But it represented an extraordinary historical precedent. If we could devote ourselves in similar fashion to energy, just imagine the possibilities. A number of experts argue that in twenty years pushing existing technology, solar will be less than fifty cents per installed watt, which is the cheapest energy there can be. With government funding, we could vastly accelerate that timeframe (and create jobs at the same time). Many will say that we cannot store solar power. Nonsense. It can be converted it into hydrogen, which can be stored. The units are small. It works perfectly well in autos. Iceland uses hydrogen. The Swedes have a new hydrogen highway that works. We just need to change the entire gas station infrastructure. The private sector will not do it. Governments can.
The prevailing motto surrounding energy for the past few years seems to have been "Drill baby, drill." The Palinites have gone curiously quiet on that score as we've come encountered the horrible ecological calamity that awaits us thanks to "Spill baby, spill." In finance, we let a crisis go to waste. One hopes that the same will not apply in energy and that criminal investigations will lead to something far more substantive than the Swiss cheese of "change you can believe in" which has characterized the Obama response to our respective health care and financial crises."
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