Goldman Sachs is “The Great American Bubble Machine”
“The first thing you need to know about Goldman Sachs is that it’s everywhere. The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money. . . .
If you want to understand how we got into this financial crisis, you have to first understand where all the money went – and in order to understand that, you need to understand what Goldman has already gotten away with. It is a history exactly five bubbles long – including last year’s strange and seemingly inexplicable spike in the price of oil. . . .
Armed with the semi-secret government exemption. Goldman had become the chief designer of a giant commodities betting parlor. Its Goldman Sachs Commodity Index – which tracks the prices of 25 major commodities but is overwhelmingly weighted toward oil – became the place where pension funds and insurance companies and other institutional investors could make massive long-term bets on commodity prices. Which was all well and good, except for a couple of things.
One was that index speculators are mostly “long only” bettors, who seldom if ever take short positions – meaning they only bet on prices to rise. While this kind of behavior is good for the stock market, it’s terrible for commodities, because it continually forces prices upward. . . .
Complicating matters even further was the fact that Goldman itself was cheerleading with all its might for an increase in oil prices. In the beginning of 2008, Arjun Murti, a Goldman analyst, hailed as an “oracle of oil” by The New York Times, predicted a “super-spike” in oil prices, forecasting a rise to $200 a barrel. At the time Goldman was heavily invested in oil through its commodites-trading subsidiary J. Aron.”
- The Great American Bubble Machine
- Matt Taibbi
- Rolling Stone
- July 9-23, 2009
Wow! This is the best expose that I have read yet. IT IS AN ABSOLUTE MUST READ!
Matt Taibbi is unafraid to take on Goldman and I love his writing style except maybe for the four-letter words. (Warning: Article Contains Adult Language)
Click for ONLINE PDF.
HUGE Breakthrough: Senate Permanent Subcommittee on Investigations Releases Report Proving Index Speculators Inflated Food Prices
“A rise in speculative trading in wheat futures has artificially inflated their prices, making it harder for farmers and grain processors to hedge against risk. That can mean higher prices for consumers, according to a yearlong investigation by a Senate panel.
“Speculators have overwhelmed the wheat futures market and … undermined (its) value,” Sen. Carl Levin, D-Mich., the subcommittee’s chairman, told reporters Tuesday. “Excessive speculation in commodity indexes has created losers throughout the wheat industry.”
Those players, from wheat farmers to grain elevators, merchants and processors, and users like bakeries and cereal companies, “can’t manage their price risks through hedging and are socked with unwarranted costs from higher margin calls and failed hedges,” said Levin. “When those costs are passed on to consumers, the result is higher food prices.“ Click for ARTICLE.
- Senate probe finds inflated prices in wheat market
- Marcy Gordon
- The Associated Press
- June 23, 2009
I have not read the report in its entirety (it’s well over 200 pages) but is damning for commodity index speculators. Their buying pushed up food prices and although energy prices were not studied the implication is that they too were inflated. The report urges the same comprehensive study be performed on oil and gasoline prices. This is the most in-depth and detailed report by any agency public or private and it’s results were endorsed by Democrats and Republicans on the committee.
I will have more to say once I’ve read the report in its entirety.
If you want to beat me to the punch here is the link:
Levin-Coburn Press Release (with link)
DIRECT LINK TO REPORT (15MB)
World United Around Exchange Clearing
“We strongly support the move to clear the contracts through central counterparties,” U.K. Treasury Minister Paul Myners said in an interview in London. “Where the derivative is exotic or non-standardized, then it should be supported by bilateral collateral arrangements and/or significantly more capital.” . . .
Myners said some of the more complex instruments and innovative financing structures of the last few years will probably disappear since they have not “added anything of economic or social value.” Click for ARTICLE
- U.K. May Force Derivatives Traders to Post Collateral (Update1)
- Bloomberg
- Gonzalo Vina and Caroline Binham
- June 18, 2008
The argument against legislation because it will drive dealers overseas is now officially dead! There is nowhere left to go. Asia wants tough regulation, Europe wants tough regulation, Obama has proposed exchange clearing and now the U.K. seconds the motion. Game over.
G8 Finance Ministers Seek To Curb Oil Speculation
“Finance ministers of the Group of Eight nations made little mention of currencies or bond yields as they ended their meeting on Saturday, but there was clear evidence of disquiet over oil and commodity prices.
French Economy Minister Christine Lagarde said ministers wanted measures to curb volatility in oil and oil products markets, where prices have climbed sharply this year as investors bet signs of an economic rebound will spark demand. . . .
The finance ministers from G8 countries — Canada, France, Germany, Italy, Japan, Russia, Britain and the United States — said volatile commodity prices put at risk growing signs that their economies were heading towards recovery.
“Excess volatility of commodity prices poses risks to growth,” the ministers said in their final statement. . . .
But Italian Economy Minister Giulio Tremonti said the return of speculation to markets was unwelcome, and made clear that he was especially worried by commodity markets.
“Speculation is coming back, a certain type of finance is raising its head again and doing the same not very nice things it was doing until last summer,” he told reporters after the meeting.
“Concern about this came…from everybody. There is a return of speculation on derivative and commodity markets.” Click for ARTICLE
- G8 finmins want curbs on commodity speculation
- Jo Winterbottom
- Reuters
- June 13, 2009
This is following on the heels of a similar statement by G8 Energy Ministers last month. Good to see that policymakers are beginning to see the truth and grasp the implications.
Soros Urging Crackdown On Derivatives
“Finally, I have strong views on the regulation of derivatives. The prevailing opinion is that they ought to be traded on regulated exchanges. That is not enough. The issuance and trading of derivatives ought to be as strictly regulated as stocks. Regulators ought to insist that derivatives be homogenous, standardised and transparent.
Custom-made derivatives only serve to improve the profit margin of the financial engineers designing them. In fact, some derivatives ought not to be traded at all. I have in mind credit default swaps. Consider the recent bankruptcy of AbitibiBowater and that of General Motors. In both cases, some bondholders owned CDS and stood to gain more by bankruptcy than by reorganisation. It is like buying life insurance on someone else’s life and owning a licence to kill him. CDS are instruments of destruction that ought to be outlawed.” Click for OPINION
- The three steps to financial reform
- George Soros
- Financial Times Opinion
- June 16, 2009
George Soros wants to outlaw CDS and force all remaining derivatives onto an exchange. Warren Buffett calls derivatives “weapons of financial mass destruction.” His partner Charlie Munger thinks all derivatives should be banned. Myron Scholes, the inventor of the Black-Scholes model for options (which is the foundation of all derivatives), says that over-the-counter (OTC) derivatives ought to be “blown up” leaving only exchange trading. It sounds like Wall Street and academia have pretty clear opinions on the value of OTC derivatives.
Forbes Focuses on Oil’s Paper Bubble
“Market forecast supply and demand, in my view, will not support an oil price above $50, let alone above $70,” [Fadel Gheit] says. “So, obviously, the oil price is inflated, and they are inflated in the hands of the same players that brought about the global financial crisis.” . . .
Gheit, who has testified before Congress urging better regulation in the market, believes “financial players have seized” the oil business in the last four or five years, with major oil companies having less impact on the market than major investment banks. “If Exxon makes an oil forecast tomorrow and Goldman Sachs makes an oil forecast tomorrow, the market will take Goldman Sachs and not pay attention to Exxon,” he says, adding, “it has nothing to do with supply and demand of the physical commodity.“ Click for ARTICLE
- Oil’s Paper Bubble
- Jesse Bogan
- Forbes
- June 16, 2009
Fadel Gheit said almost exactly one year ago, when oil was around $130 per barrel that Congressional action to crack down on excessive speculation would cut the price of oil in half and result in $2 gas. Many people ridiculed him. Congress did threaten to take action but never got a bill passed.. Yet the combination of the threat of regulation and then the financial system’s meltdown was enough to pop the oil bubble and send speculators running for the exits. The price of oil dropped over $100 per barrel and gasoline was as low as $1.35 per gallon. Haven’t we learned our lesson? Shouldn’t we be listening to Fadel Gheit now?
Insurgents Rally To Reverse Quiet Coup
Charles Ommanney / Getty Images for Newsweek
“Finally in late March, Cantwell and her confederates—Carl Levin of Michigan, Byron Dorgan of North Dakota, Dianne Feinstein of California, Jim Webb of Virginia and Vermont’s Bernard Sanders—met with Obama and members of his economic team in the White House. . . .
The internecine war of wills between the insurgents and the White House economic team has occurred mostly out of sight. But it is part of a larger battle for the future of the financial system—and in some ways capitalism itself. At issue is whether the financial landscape—the size of Wall Street firms, who regulates them and the kinds of things they will be allowed to trade—will look much different once the crisis passes. These senators fear it won’t unless they are vigilant.” Click for ARTICLE
- The Insurgents: The Secret Battle To Save Capitalism
- Michael Hirsh
- Newsweek
- June 13, 2009
As we’ve mentioned repeatedly in this blog there has been a QUIET COUP where the Wall Street banks now exercise enormous control over Washington D.C. Thankfully there is a growing group of Senators that are not content to let that happen. They are eschewing Wall Street’s campaign cash and displaying real leadership at a time when our country needs it the most.
High Gas Prices Wiping Out Obama’s Stimulus Efforts
“This hits everyone,” said Robert J. Shiller, an economist at Yale. “It has the potential to affect your confidence.” He said that the recent rise in gasoline prices could effectively offset the new $400 to $800 payroll tax cut most employees are receiving this year as part of the Obama administration’s effort to stimulate the economy.
Consumers last summer were pulling $1.5 billion a day from their wallets to fuel their vehicles. By January, as oil prices collapsed, they were spending only $600 million a day. But now they are back to daily spending of around $1 billion, Tom Kloza, chief oil analyst at the Oil Price Information Service, said.
The price increase mystifies some analysts, who say that oil demand remains weak. According to the International Energy Agency, worldwide demand is down 2.6 million barrels a day from last year, mostly because of declines in driving and slower economic activity in the United States and other industrialized countries. Oil inventories are high.
“I’m scratching my head,” said Adam Sieminski, chief energy economist at Deutsche Bank, who attributes oil’s rise to an influx of investment dollars. “Right now, the sense is the economy is on a path toward improvement, and there is a lot of cash sitting on the sidelines. So hedge funds, sovereign funds, pension funds are investing in futures and oil stocks and commodity indexes.“” Click for ARTICLE
- High Gas Prices Could Slow Recovery
- Clifford Krauss
- The New York Times
- June 8, 2009
The Obama Administration must realize two things:
- Oil prices are being driven by speculation not supply and demand
- Oil prices are threatening to derail everything they are trying to achieve
P.S. Note that Robert Shiller has commented on the oil bubble before. Click here for POST.
Wall Street Still Shamelessly Promoting Commodities As An Investable Asset Class
“Hedge funds and other large investors are leading a surge of commodities investment that may continue to grow as optimism increases that the worst global recession since World War II is easing, Barclays Plc said.
“People are investing in commodities again because the prices are going up and because the fundamentals look a lot better,” London-based Kevin Norrish, director of commodity research at Barclays, said in an interview in Perth. “We’ve seen a lot of money come in. Hedge funds certainly have come back into commodities over the last few months in a big way. It hasn’t reached its peak.” . . .
“There are a number of big investors who are very positive toward commodities now because they realize the supply-side constraints are really important,” Norrish said. “If you have commodities in your portfolio, it does give you diversification that other assets don’t.”
Most large investors aspire to have 5 percent of their portfolios directly invested in commodities, Norrish said.
“If you look at the global portfolioable assets, then commodities as a proportion of that would be a fraction of 1 percent, so there’s lots of potential room for growth,” he said.” Click for ARTICLE
- Commodity Investment Surge Yet to Peak, Barclays’ Norrish Says
- Jason Scott
- Bloomberg
- June 12, 2009
Stop and think for a second what this man is saying: “People are investing in commodities again because the prices are going up.“ WHAT! Speculators see the price rising, so they pour their money in, causing the price to go even higher, attracting more speculators and creating a self-reinforcing BUBBLE in commodity prices.
Norrish thinks that speculators should continue to pour money into commodities because “It hasn’t reached its peak.“ This is directly stoking the speculative frenzy by saying essentially more speculative money will be flowing in tomorrow so you ought to profit by putting yours in today.
Worst of all he says that investors ought to have 5% of their portfolio in commodities and they’re currently at 1%. God help us if we get 5 times more money flowing into commodities!
Jim Cramer: Oil Prices Artificially Driven Up By Speculators
More CNBC Video Discussing Excessive Speculation Bubble In Oil
Mike Masters Testimony To Senate Ag
The Senate Agriculture Committee held a hearing on “Regulatory Reform and the Derivatives Markets” on June 4, 2009. Mike Masters submitted a detailed blueprint for exactly what should be done to protect the American people from another financial system collapse and another excessive speculation bubble in food and energy prices.
Click for TESTIMONY
Unfortunately you cannot link directly to the Hearing’s page but I would recommend watching the video from the hearing and/or reading the written testimonies of the witnesses (many of whom were quite good).
You Must Listen To This Man :: He Gets It And It Appears CNBC Gets It Too
Speculative Trading Frenzy In Paper Oil
“OPEC’s Secretary General said on Tuesday more balance was needed between the amount of oil traded in the physical markets and the “paper” markets, which the group has often blamed for causing price swings.
“The paper market should be a reasonable percentage of the physical market, of the real barrels,” Abdullah al-Badri said at the Reuters Global Energy Summit.
Badri said in June 2007, there was the equivalent of 3 billion barrels of oil being traded in paper markets, when 67 million barrels a day were traded in the physical oil markets.
He said it was not acceptable to have this imbalance. . . .
The Organization of the Petroleum Exporting Countries has previously said there was a need to control speculation and Badri reiterated there was a need for standards.” Click for ARTICLE
- OPEC wants to see “paper” oil reined in
- Jane Merriman, Alex Lawler, Barbara Lewis
- Reuters
- June 2, 2009
If you were looking for a definition of excessive speculation this is it!
John Heimlich, the Chief Economist of the Air Transport Association pointed out that in the month of June the combined volume of the NYMEX WTI, ICE WTI and ICE Brent futures contracts just by themselves is over 1 Billion barrels per day (this does not include the OTC markets which are larger). There are only 85 million barrels per day produced and consumed in the world. If every barrel produced was hedged (most are not) with a speculator on the other side and every barrel consumed was hedged (most are not) with a speculator on the other side then at least 830 million barrels per day are traded BETWEEN speculators. Oil futures trading is well above 83% PURELY speculative!!
Using OPEC’s numbers it’s over 95% speculative!!!
These are NOT side bets. Futures prices determine spot prices. Clearly speculators with 83%+ market share determine futures prices.
P.S. OPEC got burned the most when oil prices crashed last year from $147 to $33 per barrel. They realize that they have little if any control over oil prices any more. Speculators are firmly in control.
Wall Street Resisting With All Its Collective Strength
“As the financial crisis entered one of its darkest phases in October, a handful of the nation’s largest banks began holding daily telephone sessions. Murmurs were already emanating from Washington about the need for a wide-ranging regulatory overhaul, and Wall Street executives girded for a fight.
Atop the agenda during their calls: how to counter an expected attempt to rein in credit-default swaps and other derivatives – the sophisticated and profitable financial instruments that were intended to limit risk but instead had helped take the economy to the brink of disaster.
The nine biggest participants in the derivatives market – including JPMorgan Chase, Goldman Sachs, Citigroup and Bank of America – created a lobbying organization, the CDS Dealers Consortium, on Nov. 13, a month after five of its members accepted federal bailout money.
To oversee the consortium’s push, lobbying records show, the banks hired a longtime Washington power broker who previously helped fend off derivatives regulation: Edward J. Rosen, a partner at the law firm Cleary Gottlieb Steen & Hamilton. A confidential memo Mr. Rosen drafted and shared with the Treasury Department and leaders on Capitol Hill has, politicians and market participants say, played a pivotal role in shaping the debate over derivatives regulation.
Today, just as the bankers anticipated, a battle over derivatives has been joined, in what promises to be a replay of a confrontation in Washington that Wall Street won a decade ago. Since then, derivatives trading has become one of the most profitable businesses for the nation’s big banks.”
A MUST READ article. Click for ARTICLE.
- In Crisis, Banks Dig In for Fight Against Rules
- Gretchen Morgensen and Don Van Natta Jr.
- New York Times
- May 31, 2009
“The battle lines are being drawn in the derivatives market, as Wall Street tries to pre-empt new laws that could drain a big source of banks’ profits.
A group of banks and money managers will next week present a plan designed to help fend off some rules proposed by the Obama administration, which wants to reform trading practices in the market for over-the-counter derivatives. . . .
Potentially billions of dollars in revenue is at stake. An effort earlier this decade to improve transparency in the corporate-bond market ended up cutting bank fees by more than $1 billion in a year, according to some studies. . . .
One price-reporting model being considered for the market is a system akin to Trace, a system for corporate bonds. After Trace was implemented in 2002, the gap between bid and offer prices halved, cutting trading profits for banks. Many bankers still lament that the transparency made traders less willing to take big positions in corporate bonds and encouraged more trading in the opaque credit-default swap market.” Click for ARTICLE
- Banks Seek Role in Bid to Overhaul Derivatives
- Serena Ng
- The Wall Street Journal
- May 29, 2009
Wall Street wants reform as long as it makes them more profitable, more powerful and does not cost them a dollar. Otherwise they will pull out all the stops and spend as much (taxpayer) money as it takes to prevent any significant regulatory reform. A QUIET COUP has taken place and Government Sachs is running this country.
Oil Bubble Based On Baloney
“He [Khalid A. al-Falih, CEO of Saudi Aramco] suggested that additional government regulation of financial markets may be necessary after crude oil prices spiked in 2008. “We’re in the minority on what happened, at least publicly. We felt the market was well-supplied. At the same time, we were on the phone literally begging our customers to take more barrels to reduce pressure on prices. We continue to believe that speculators drove the increase a perception that supplies were tight. We found this odd since we had so much spare inventories and production capacity,” he said.” Click for ARTICLE
- Saudi Aramco to stick with investment program, output rate, CEO says
- Nick Snow
- Oil & Gas Journal
The Wall Street Banks that were hyping the Oil Bubble worse than Henry Blodget hyping an Internet Stock kept telling us that Chinese Demand was insatiable and that Saudi Arabia and OPEC could not increase production capacity fast enough. Now we know that both points are baloney and most likely Wall Street knew it was baloney all along but profited greatly from the bubble they created on hype.
Chinese Demand: Below you can see the last 10 years of Chinese Oil Demand growth ranked top to bottom (according to the EIA). What you see is that 2008 ranked 6th on a percentage basis (5th on an absolute basis). Basically a boring middle of the road year. Chinese Demand is nothing new – it’s been around for more than a decade.
Year Growth
2004 859Kbpd +15.4%
2000 432Kbpd +9.9%
2003 417Kbpd +8.1%
2006 540Kbpd +8.1%
1999 258Kbpd +6.3%
2008 389Kbpd +5.1%
2002 243Kbpd +4.9%
1998 190Kbpd +4.8%
2007 330Kbpd +4.6%
2005 258Kbpd +4.0%
2001 122Kbpd +2.5%
Saudi/OPEC Supply & Inventories: According to the above article the Saudis were begging their customers to take oil and the customers were telling them to buzz off. Nobody wanted $140 oil beyond the bare minimum that they required. Wall Street looked at production figures and claimed that there was unmet demand because production was not increasing. Again total fiction. There is no way to measure unmet demand! If pressed for evidence of unmet demand, Wall Street would point to the rising price and say that if demand was being met then prices would not be rising (excluding obviously the fact that all this demand was coming from speculators in the futures market).
So the Saudis make a smart business decision which is to not pump (produce) any more oil than their customers are willing to buy. Which also happens to answer the questions of the Ivory Tower Academics as to why there was no inventory buildup. Why pump oil when nobody wants it!? Keep it in the ground where storage costs are zero.
Classic!
Hedge Funds, Commodities Mutual Funds, ETFs All Funneling Investor Money Into Commodities Futures – Creating Their Own Inflation
“Hedge funds are making the biggest bet in nine months that commodity prices will rise as the global economy rebounds from its steepest slump since World War II.” Click for ARTICLE
- Hedge Funds Bet Most Since August on Commodities
- Chanyaporn Chanjaroen
- Bloomberg
- May 26, 2009
“Flows are being driven by the recovery in commodity prices,” Durham said in the e-mail. “Faint improvement in economic data recently is fueling hope of global economic recovery and demand for commodities.” . . .
Investors put $150.5 million into energy mutual funds in the week ended May 13, the most in eight weeks, according to EPFR. Energy funds have drawn $1.2 billion this year, increasing total assets to $19.5 billion” Click for ARTICLE
- Commodity Mutual Funds Draw Most Money Since March, EPFR Says
- Chanyaporn Chanjaroen
- Bloomberg
- May 18, 2009
“Exchange-traded commodity products attracted $21 billion in the first quarter, the most since Barclays started collecting the data in 2005. The figure includes medium-term notes, which track commodities over a specific time period.” Click for ARTICLE
- Commodity Mutual Funds Favored Over Hedge Funds on Regulation
- Chanyaporn Chanjaroen
- Bloomberg
- April 2, 2009
People are stampeding into the commodities space to “hedge against inflation.” As all this money flows into commodities futures it is driving prices up. In other words it is creating inflation. So you’ve got a perverse dynamic where fear of inflation causes a spike in oil and other commodity prices which kills the economic recovery and actually prevents any real inflation from occurring.
Policy makers need to understand this dynamic for two essential reasons:
(1) These false signals do not presage true inflation
(2) These investors are threatening to wreck all the government’s efforts to right the economic ship.
Jim Cramer and CNBC Peg The Reinflating Oil Bubble As Speculator Driven
“Commodity inflation is not real inflation. Commodity inflation is China- and speculation-driven inflation of imperfect commodities by fearful or greedy customers and traders.” Click for ARTICLE.
- It’s still not inflation
- Jim Cramer
- BloggingStocks.com
- May 21, 2009
“. . . because we all learned a vital lesson last year, which is that a $2 billion to $3 billion hedge fund in cahoots with another $2 billion to $3 billion hedge fund can easily rig the oil futures higher on no volume. . . . Oil is too easily manipulated for my taste, and we have a government that just seems clueless to these manipulations and to the overpowering ETFs that are also used to take commodities up and down with ease.” Click for ARTICLE (subscription required).
- Can the Market Rally Without Oil?
- Jim Cramer
- TheStreet.com RealMoney
- June 4, 2009
“It’s now easier to invest in commodities and hedge against inflation. Before ETFs came along investors had to deal with tricky and pricey futures or the cumbersome act of physically holding and even storing a commodity.
Right now, there’s huge access that wasn’t there just a few years ago, and there are billions now flowing into ETFs. Oil didn’t spike from $30 to $150 a barrel simply on rising demand or a drastic drop in supplies – speculation had a role. If you can’t beat ‘em, join ‘em. The speculators are a powerful force in the markets these days.” Click for ARTICLE.
- Commodities and Inflation: How to Trade Now
- Tom Lydon
- CNBC Stock Blog
- June 9, 2009
Speaking of bubbles, Congress is living in a bubble. They are still listening to Wall Street Banks whispering in their ear that last year’s historic boom and bust in oil prices was supply and demand driven. While up and down Wall Street everyone is talking openly about last year’s bubble, this year’s approaching bubble, the impact of speculators and how they rule the markets. We are seeing research reports on a daily basis from all the big banks talking about speculation and how it’s driving prices.
All you have to do is turn on CNBC and it’s right there in your face, over and over again.
Speculators aren’t even hiding any more. The more blatant this becomes the more impotent the U.S. Government looks.
Flaw In Waxman-Markey Close To Unleashing Enron Across The United States
“On paper, the Waxman-Markey bill puts a cost on carbon dioxide by imposing a ceiling, or cap, on greenhouse gas emissions and then setting up a market for regulated industries — such as the electric power sector — to buy and sell allowances to pollute under that cap. As the cap is reduced each year, market participants will exchange allowances in a complex auction market.
If you liked what credit default swaps did to our economy, you’re going to love cap-and-trade. Just read Title VIII of the bill, which lets investment banks, hedge funds and other speculators participate in the cap-and-trade market. They don’t have emissions to cut; they have commissions to make.”
- Let’s Have Cap and No Trade
- David Sokol
- Washington Post Opinion
- May 19, 2009
We are aggressively agnostic when it comes to climate change but if you are going to cap please do NOT trade.
The Cap and Trade system, as provided for in the proposed Waxman – Markey Legislation, has all the ingredients of a large-scale speculative bubble waiting to happen. In fact, this Carbon Bubble has the potential to be worse – by orders of magnitude – than the 2008 Oil Bubble.
Carbon Supply is finite and shrinking making it prone to excessive speculation and manipulation.
Carbon Demand is growing naturally with the economy and giving investors the ability to buy carbon credits and bank them forever allows highly leveraged derivatives traders to buy huge amounts.
Unchecked this will lead to a massive supply & demand imbalance that will result in a huge price spike.
The result is that financial trading firms will push carbon prices through the roof (like Enron did with Electricity on the West Coast) and all of America will suffer while these firms mint huge profits.