Closing Generating Plants to Manipulate the Market

!!@@#dddddd444plate18-thClosing Generating Plants to Manipulate the Market

I remember when Enron closed generating plants for “maintenance” back in the good old days of extorting money from the citizens. These maintenance periods coincided with peak demand in California and helped Enron generate billions in profits. And I remember that many public officials were shocked that anyone would think something suspicious was going on.*(see below)

An ethical businessman makes money by selling a service or a product. An unethical businessman manipulates the market to make money. Making money the ethical way is too slow when you can lobby regulators to look the other way while you cut the supplies of electricity to raise the price. It is fast profits, a high return on an investment, good results for the next quarter, and it leaves in the dust the ethical businessman.

If this process is not regulated, then the unethical manipulators will drive the ethical producers out of the electrical business. This is a kind of Social Darwinism in which the unprincipled and immoral displace their competitors producing a mediocracy of the ethicless. A society that values simply making money by whatever means necessary will embrace such mediocracy since only a fool would act ethically when money can be made. So in time, all producers will act to manipulate and cheat as opposed to making an honest dollar.

The dishonest profit destroys the moral fabric of a society?

Probably not the best place to raise children?

James Pilant

Enron-style price gouging is making a comeback | Al Jazeera America

The price of electricity would soar under the latest scheme by Wall Street financial engineers to game the electricity markets.

If regulators side with Wall Street — and indications are that they will — expect the cost of electricity to rise from Maine to California as others duplicate this scheme to manipulate the markets, as Enron did on the West Coast 14 years ago, before the electricity-trading company collapsed under allegations of accounting fraud and corruption.

The test case is playing out in New England. Energy Capital Partners, an investment group that uses tax-avoiding offshore investing techniques and has deep ties to Goldman Sachs, paid $650 million last year to acquire three generating plant complexes, including the second largest electric power plant in New England, Brayton Point in Massachusetts.

Five weeks after the deal closed, Energy partners moved to shutter Brayton Point. Why would anyone spend hundreds of millions of dollars to buy the second largest electric power plant in New England and then quickly take steps to shut it down?

Energy partners says in regulatory filings that the plant is so old and prone to breakdowns that it is not worth operating, raising the question of why such sophisticated energy-industry investors bought it.

The real answer is simple: Under the rules of the electricity markets, the best way to earn huge profits is by reducing the supply of power. That creates a shortage during peak demand periods, such as hot summer evenings and cold winter days, causing prices to rise. Under the rules of the electricity markets, even a tiny shortfall between the available supply of electricity and the demand from customers results in enormous price spikes.

With Brayton Point closed, New England consumers and businesses will spend as much as $2.6 billion more per year for electricity, critics of the deal suggest in documents filed with the Federal Energy Regulatory Commission.

That estimate will turn out to be conservative, I expect, based on what Enron traders did to California, Oregon and Washington electricity customers starting in 2000. In California alone the short-term market manipulations cost each resident more than $1,300, a total burden of about $45 billion.

via Enron-style price gouging is making a comeback | Al Jazeera America.

*Bush administration officials repeated Enron’s claims that California’s problems were caused by the state’s “flawed” deregulation plan—which was not “free market” enough—and strict environmental standards, which limited the construction of new power plants. Bush and Vice President Dick Cheney publicly opposed price controls, insisting that any such moves would be a disincentive for power companies to operate in the state.

Several weeks after the memos were written outlining the company’s strategy to manipulate California’s market, Enron CEO Kenneth Lay—the largest single contributor to Bush’s political career—successfully prompted the Bush administration to appoint free-market advocate Pat Wood as the head of the Federal Energy Regulation Commission. Once in place, Wood resisted the implementation of price controls for months while the crisis spun out of control.

After FERC was finally pushed to restrict price hikes in late April 2001 Cheney denounced the move, telling the Los Angeles Times, “Price caps are not a help. They take us in exactly the wrong direction.” After reiterating that only free market policies could resolve California’s problems, Cheney added, “I’ve never seen price regulations that I’ve felt very good about. If I had been at FERC, I would never have voted for short-term price caps.”

At the time California’s Democratic governor and senators requested federal intervention to hold down the cost of electricity and charged that energy providers were manipulating the market to boost their profits. According to the New York Times, Senator Diane Feinstein said she tried “three or four times” to speak with Bush about the state’s crisis but the president refused to meet with her. Instead she held two brief meetings with Cheney as part of larger groups. “Their attitude was laissez-faire, let the market do what the market does, but it was a broken market,” she told the Times. At meetings with Cheney on March 27 and June 12, she said, the vice president spoke, “but did not listen much. When someone is looking at their watch, it gives you a pretty good idea they want to get out of the room,” Feinstein said.

From Around the Web.

From the web site, CBS News.

JPMorgan Chase & Co. (JPM) agreed to pay $410 million in penalties on Tuesday to settle accusations by U.S. energy regulators that it manipulated electricity prices.

The Federal Energy Regulatory Commission said the bank used improper bidding strategies to squeeze excessive payments from the agencies that run the power grids in California and the Midwest in 2010 and 2011.

The penalty includes $285 million for the federal government, and $125 million for ratepayers.

FERC’s enforcement staff said its investigation had found improper trading practices were used at Houston-based JPMorgan Ventures Energy Corp.

JPMorgan said in a written statement that it’s “pleased to have reached an agreement with FERC to put this matter behind it.” JPMorgan didn’t admit or deny any violations.

FERC recently levied a $453 million penalty on Barclays, Britain’s second-largest bank, for manipulating electricity prices in California and other Western states. Barclays is disputing the allegations.

FERC claimed JPMorgan’s energy unit used five “manipulative bidding strategies” in California between September 2010 and June 2011, and three in the Midwest from October 2010 to May 2011.


Is the Justice Department Gutless?

How do we make sense of this? Goldman Sachs emails call their own investments “junk” and “crap,” and Goldman Sachs salespeople refer to clients as “muppets” and “elephants.” Yet the Justice Department says there is not enough evidence to bring a case on behalf of Goldman Sachs investors who lost vast sums of money.Seal of the United States Department of Justice

Seal of the United States Department of Justice (Photo credit: Wikipedia)

Goldman Sachs prosecution fails: Why can’t the Justice Department fight Wall Steet?

Now that that’s out of the way, I can say what we are all thinking: Really? Are you kidding me? Wall Street continues to get away scot-free? The Justice Department prosecutes Roger Clemens for perjury—spends countless resources, hours, and energy worrying about steroids in baseball—yet seems incapable of making cases against the big Wall Street firms that engineered the greatest lies, frauds, and scams in our economic history. I am as outraged, disappointed, and furious as you are. Have they no backbone, shame, or sense of what justice is all about? It does nothing for my already waning faith in this Justice Department.

Goldman Sachs prosecution fails: Why can’t the Justice Department fight Wall Steet?

Apparently the great “vampire squid,” is immune to prosecution. In their e-mails they virtually admitted they were committing fraud. What does the Justice Department need in the way of evidence to prosecute? It seems to me if you are well connected enough and big enough, an infinite amount of evidence would still not be enough.

This is another example of America’s two tiered justice system – one for regular citizens and another for the privileged. There is a certain irony in the phrase, land of the free. It seems that some are apparently more free than others.

Business Ethics – Did that play any role here? You bet it did. By systematically breaking the rules, abusing it customers and blatantly lying, Goldman Sachs made billions of dollars. It is a pure lesson in why the phrase, business ethics, often evokes sneers or knowing giggles. I’ve seen and heard them.This is a lesson in negative business ethics, the other side of teaching what is right, teaching to do what is wrong.

We are systematically educating our young to be financial criminals, to reject the values of the righteous and embrace less than the moral minimum.

Our society has an opportunity here to create a society fit for no one but the predators.

Is that where you want to live?

James Pilant

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Student Loan Debt a Lifetime Burden for Middle Class but Major Money Maker for Goldman Sachs

Kids today still screwed – Student Loan Debt –

Just in case anyone decided to “scam” themselves some free higher education by going to college and then declaring bankruptcy, Congress decided in 1998 to make sure that student loan debt had no statute of limitations and could not be discharged except in the event of extreme (and effectively unprovable) hardship. Then tuition began skyrocketing, players like Goldman Sachs got into the student lending business, and middle-class job opportunities for people without college degrees disappeared. The result, naturally, has been extremely profitable for certain people (Lally Weymouth) and basically awful for everyone else in America. Now, Eric Pianin is in Lally Weymouth’s Washington Post saying that student loan debt might be “the next debt bomb.

Kids today still screwed – Student Loan Debt –

My poor students are getting battered by an economy where there are few jobs in a nation where last year’s college graduates owed an average of $24,000 in student loans.

Other nations do not place the burden of higher education on the students. It is a matter of public expenditure. The United States has long been the leader in college graduates worldwide and no we are fourth. I see no prospect of that getting better but only worse. Education is not a commodity. It is a public good necessary for a successful society.

We can do better than this. We are a better people than this.

James Pilant

Wall Street Suffers “Hard Times”

A few weeks ago there was a controversy over grants given to Planned Parenthood by the Susan Komen foundation. The vice president confronted by complaints that poor women would lose their access to health care responded dramatically –

Karen Handel, a former GOP candidate who ran on a pro-life platform, shows her true colors. She just happens to be Susan G. Komen’s Vice President of Public Policy now. “Just like a pro-abortion group to turn a cancer orgs decision into a political bomb to throw. Cry me a freaking river”

Disdain for poor women and their need for medical currently fashionable among some groups of Americans. There is a suspicion in some quarters that the top 1% find paying for social services an welcome burden.

Now, of course this behavior is contrary to the Greek concept of virtue ethics, modern Protestant business ethics and Catholic social doctrine. However a proportion of the the 1% are getting their comeuppance. It is a small comeuppance but nevertheless, any comeuppance is better than none.

Please read this excerpt –

Wall Street’s Average Cash Bonus Expected To Fall To $121,000

Wall Street cash bonuses for 2011 are expected to drop 14 percent and profits are expected to drop by half for the second year in a row, according to a forecast Wednesday by New York state Comptroller Thomas DiNapoli.

That would result in cash bonuses of $19.7 billion. Profits are expected to be less than $13.5 billion in 2011, compared to $27.6 billion in 2010.

The average cash bonus is expected to be $121,150 for 2011, down from $138,940 in 2010. Bonuses peaked before the recession in 2006 at $191,360.

Wall Street’s Average Cash Bonus Expected To Fall To $121,000

You read it right. Wall Street bonuses will only be $13.5 billion dollars. It’s a trifle, a small amount of money. Of course, it would pay for all the college tuition in the United States for the next year and still have a couple of billion walking around money left. But like I said that’s just a smidgeon on Wall Street.

You probably noticed that the average payout on Wall Street will be $121,000.

Let’s see what is said about this –

The average cash bonus is expected to be $121,150 for 2011, down from $138,940 in 2010. Bonuses peaked before the recession in 2006 at $191,360.

DiNapoli said the forecast for this bonus season shows continued hard times on Wall Street two years after the recession officially ended. The securities industry lost 28,000 jobs, including 9,600 that had been briefly recovered before the slide began in April.

“Continued hard times!” Wow! $121,150 is almost three times the average salary in the United Stand and these people also draw a regular salary. Average salary at Goldman Sachs is $367,057. But we know they’re suffering. 

Well to quote the former vice president of the Susan Komen Foundation, “Cry me a freakin river!”

James Pilant

Here is my take on the 1% with a little help from Garfunkel and Oates.

Save the Rich

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Contraception under Attack

The Norman north west tower prior to demolitio...

Image via Wikipedia

Comment: Putting religious group’s campaign against contraception into context | McClatchy

I was following my daily reading ritual beginning with Beat the Press, the next six, and then finishing with Slate.  McClatchy (fifth) is always interesting often going where the regular news media do not.

Sometimes, you read an article that is particular useful to your thinking (and one that I wish I had written myself).

This article puts the recent drive by fundamentalist and Catholic denominations to limit reproductive freedom, more precisely, contraception. The essay discusses the history of previous attempts of religion to limit rights. I was aware of these but had never thought of viewing the recent events in context.

I want to give credit to Sarah Lipton-Lubet of American Civil Liberties Union for building my understanding of the issue.

Here’s a paragraph from the story (link at the bottom of the page) –

Remarkably, contraception has recently come under attack with new vigor. Earlier this year, the House of Representatives voted to eliminate Title X, the federal program that makes contraception accessible to low-income people throughout the country, and to defund Planned Parenthood’s family planning work. Mississippi was contemplating a constitutional amendment that would outright ban some of the most common forms of birth control. And now, important new federal guidelines that will ensure insurance plans include coverage of contraception are being targeted.

Once again, I thank the author.

James Pilant

Commentary: Putting religious group’s campaign against contraception into context | McClatchy

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We are the People – Who the Hell are You? | Crooks and Liars

Occupy Wall Street - Anonymous 2011 Shankbone

Occupy Wall Street has a message and I like it.

James Alan Pilant

You hear that, Herman Cain? It’s against the law to ban mosques in America. You hear that, Christine O’Donnell? It’s against the law to teach creationism in public schools. You hear that, Bill Haslam? It’s against the law to impose curfews in an attempt to stifle the right of the people to peaceably assemble. You hear that, Bank of America? Goldman Sachs? Fannie Mae and Freddie Mac? We’re done meekly allowing you to rape, plunder and pillage the 99 percent for the benefit of the 1 percent. Can you hear us, all you bought-and-paid-for Republicans and Democrats alike, telling you we’ve had enough from you both, consider this our petition for a redress of grievances.

We are the People – Who the Hell are You? | Crooks and Liars

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Business Ethics Roundup 10/11/2011

1. The Ethics Sage has a new post on the civility movement at Harvard  entitled –

Harvard University Jumps on the Civility Bandwagon

Here’s a key paragraph:

The fact is administrators at Harvard are pressuring the Class of 2015 to do something no other student class has ever been asked to do in 375 years: Sign a civility pledge. The “Class of 2015 Freshman Pledge” was presented to students before an opening convocation last month. The message serves as a kind of moral compass for the education Harvard imparts. In the classroom, in extracurricular endeavors, and in Harvard Yard and Houses, students are expected to act with integrity, respect, and industry, and to sustain a community characterized by inclusiveness and civility. The “Pledge” idea seems a bit odd to me. Is Harvard saying its students have not acted civilly up until now? Has Harvard ignored civic virtue in its teachings?

It’s a good article. Certainly, I think a few more pledges in the direction of civility and morality are merited. The current American ethos seems to be heavily drawn from Milton Friedman and Gordon Gekko, in equal parts.

2. Professor Chris MacDonald writing in the Business Ethics Blog has an article intriguingly entitled –

Bullying in Pursuit of the Public Good

This would be my preference for the key paragraph – not as lively as some of the others but it contains the heart of the message – Don’t assume one side is right all the time.

Now most people are generally not very worried about major corporations, or large institutions of any kind, being bullied. And it’s easy enough to understand why. We’re usually more worried about corporations having too much power, rather than too little. But to uniformly celebrate victories of NGOs over corporations is to assume that NGOs are always right. And that’s a mistake. It’s also a mistake to assume that NGOs are in any important sense democratic, or automatically representative of the public interest.

3. Lauren Bloom writing in her blog has a new article called –

A Loving Tribute to Steve Jobs

This is the best paragraph –

But the thing that keeps coming to my mind as I think about Steve Jobs was his dedication to creating extraordinary products that inspired unprecedented customer devotion. Everyone uses cell phones, computers, and other portable electornic devices these days, but if I hear someone say they “absolutely love” one of those devices, more often than not it turns out to be an Apple product. And while cartoons aren’t everyone’s cup of tea, film buffs who enjoy animation typically love Pixar movies. One might disagree on which of Pixar’s films is the best (my personal favorite is Ratatouille but my brother lobbies hard for The Incredibles), but to my recollection, there’s been something to love about every movie Pixar has ever produced.

4. Josephson on Business Ethics and Leadership has an article called –

Hunger and Poverty: Consequences of deregulating food markets

Millions of poor people are starving in famines right now because the U.S. has relaxed regulations on commodities trading over the past 10 years. Into the breach have rushed financial companies like Goldman Sachs that poured millions of dollars into food commodities trading, in pursuit of short-term profits. In the process, they’ve created artificially soaring food prices that affect the whole world.

As went tech stocks in the 90s, and housing prices in the 00s, the price of food is now set on a financial bubble.  And human agony and death is the result.

I wish the author had developed the topic in more detail. I fell like I was in the middle of a good strong read and then was cut off in the middle.

James Pilant


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Goldman Sachs Hit With More Sanctions (via Axsmith Law Blog)

No firm deserves sanctions more!

James Pilant

Goldman Sachs is being sanctioned by the Federal Reserve related to illegal mortgage practices, specifically robo-signing. Robo-signing is when a person signs affidavits used in a foreclosure case using someone else's name. Often these employees of banks or law firms will sign hundreds of documents in a single day – with someone else's name. … Read More

via Axsmith Law Blog

Goldman Sachs Lies

From the Huffington Post

Wall Street giant Goldman Sachs generated at least 18 percent of its revenues last year through trading and investing for its own benefit, according to a regulatory filing made Tuesday detailing the first nine months, flatly contradicting the firm’s previous claims that such speculative activity made up a much smaller slice of its business.

In recent months, as Goldman has fended off widespread accusations that it has become the leading example of the gambling culture permeating Wall Street — placing bets for its own profit rather than engaging in old-fashioned banking services — the company has insisted that trading made up no more than one-tenth of its revenues.

During a conference call last year, the firm’s chief financial officer, David Viniar, described the company’s private trades as comprising “10-ish type of percent” of its total revenues.

But the company’s disclosures filed Tuesday with the Securities and Exchange Commission revealed that trading and investing comprises almost twice that percentage.

Maybe in the minds at Goldman Sachs, “tenish percent” can go up to 18 or 19 percent. It’s just a little white lie, unless of course, you’re one of the biggest financial trading houses on earth; unless you’re trying to reassure your investors that you don’t spend most of your time and their money by playing them for fools.

The temptation to make incredible sums of money by using the inside knowledge of your clients investments is difficult to overcome. The temptation to deliberately damage your clients’ interests by betting against their investments is also difficult to overcome. These temptations are why the proportion of proprietary trading is so important. The more proprietary trading, the harder it is to believe that the investors are not getting stiffed.

So, this lie is significant. It tells us a lot about an investment company and its standards.

I get the impression that the long term has only a certain amount of importance. The level of proprietary trading would be lower if the firm were maximizing its long term postion by reassuring investors of the security of their investments. The numbers indicate a drive toward short term, quarterly and yearly, profits.

Business ethics, how much are we looking at?

James Pilant

Facebook And Goldman Sachs

Steven Mintz, the Ethics Sage, has a new post about the Facebook deal with Goldman Sachs. Any transaction with the name, Goldman Sachs, in it should raise legitimate concerns. Professor Mintz provides detail on what is wrong with the deal. I suggest you read the full post.

James Pilant

From the Steven Mintz post, Facebook — Goldman Sachs Deal

I am quite dubious about the Facebook — Goldman Sachs transaction because we’ve been there before. Back in the late 1990s and early 2000s we heard about company’s such as Lucent Technologies, Sunbeam, Qwest, WorldCom and, off course, Enron that all had one thing in common — they cooked the books and fooled investors into thinking they were doing a lot better than the true numbers indicated. I hope that’s not the case with the Facebook deal for the sake of the investors and our fragile economy. Otherwise, there may be a sequel to the movie, The Social Network — The Demise of the Social Network!