Who's to pay? - or rather How to pay? - is the big question in the climate challenge to combat global warming. Or in other words, to pay for the hot air balloon salvation. One of the points repeated over and over again during the World Business Summit on Climate Change is that we need innovative financing. To get a hold of that, we needed to hear the bankers. One very hip way of funding is the mentioned ETS/Emission Trading System and the CDM/Clean Development Mechanism. The financing of which were debated in a working group called 'Carbon Markets', consisting primarily of bankers and regulators. And as was pinpointed by moderator Samuel A. DiPiazza, CEO of PricewaterhouseCoopers International, the toughest challenge is to set a price on carbon. And then there is the 'how to':
Some financial suggestions were put forward by Abyd Karmali, Global Head of Carbon Markets at Bank of America/Merrill Lynch. He mentioned Derivatives, Futures, and Options - and excused himself at the same time. You see, since the onset of the financial crisis these three little words have had a sad connotation. In particular, it is worthwhile to recall the big save of exactly Merrill Lynch by Bank of America's take-over in 2008 - precisely due to the heavy use of the derivatives/credit default swaps, which are basically loan insurances. Bank of America had too high a risk exposure with its investments in Merryll Lynch - and actually had to buy the whole hot air balloon in order not to fall themselves. The credit default swaps/loan insurances exposure, in the case of Bank of America, were close to 40 times above its net worth/equity. This according to the weekly letter of Ugebrevet Mandag Morgen in september 2008 - the very initiator and organizer of this climate summit.
So here comes the paradox: Is it really a good idea to save one hot air balloon (the global warming of Mother Earth) - financing it through another kind of hot air balloon (futures and derivatives)? Abyd Karmali tried to answer that himself: 'We have to ensure a healthy market'. If Merryll Lynch is included in this 'we' is my big worry. And in the response to the same critical question Tracy Wolstencroft, Managing Director at Goldman Sachs, made a point: 'In the US it should be financed through bonds'. Probably in line with the new policies put forward by the current government under Obama. To stop the hot air balloons - financial or climate ones.
Some financial suggestions were put forward by Abyd Karmali, Global Head of Carbon Markets at Bank of America/Merrill Lynch. He mentioned Derivatives, Futures, and Options - and excused himself at the same time. You see, since the onset of the financial crisis these three little words have had a sad connotation. In particular, it is worthwhile to recall the big save of exactly Merrill Lynch by Bank of America's take-over in 2008 - precisely due to the heavy use of the derivatives/credit default swaps, which are basically loan insurances. Bank of America had too high a risk exposure with its investments in Merryll Lynch - and actually had to buy the whole hot air balloon in order not to fall themselves. The credit default swaps/loan insurances exposure, in the case of Bank of America, were close to 40 times above its net worth/equity. This according to the weekly letter of Ugebrevet Mandag Morgen in september 2008 - the very initiator and organizer of this climate summit.
So here comes the paradox: Is it really a good idea to save one hot air balloon (the global warming of Mother Earth) - financing it through another kind of hot air balloon (futures and derivatives)? Abyd Karmali tried to answer that himself: 'We have to ensure a healthy market'. If Merryll Lynch is included in this 'we' is my big worry. And in the response to the same critical question Tracy Wolstencroft, Managing Director at Goldman Sachs, made a point: 'In the US it should be financed through bonds'. Probably in line with the new policies put forward by the current government under Obama. To stop the hot air balloons - financial or climate ones.