Cap & Trade … and you think mortgage-backed derivatives were risky

Excerpted from WSJ, “The Carbon Cap Dilemma”, March 28, 2009

The essence of cap and trade:

Congress puts a ceiling on emissions, and then allows businesses to sell any of its extra allowances that stand for the right to emit, it is essentially creating the world’s largest commodity market — in carbon-backed securities. These will be extremely valuable, and everything comes down to how the government chooses to distribute them. ”

Full article:

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Ken’s Take: Think about it … a financial derivative tied to the amount of carbon that an energy generating facility doesn’t emit.  At least mortgage backed securities were, well, backed by mortgages — albeit risky ones.  These derivatives would be backed by, well, nothing, except a Congressional definition that could change at Barney Frank’s whim.  You’d think that Enron and the current financial mess would have soured folks on those sorts of financial instruments.

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