01 Sep 2009 Cap-and-Trade-Backing CEOs Should Learn from the Housing Bubble that the Pursuit of Liberal Policy Goals is Not a Sound Business Strategy, by Tom Borelli, Ph.D.

With President Obama and his allies in Congress pushing for a cap-and-trade regulatory policy to reduce greenhouse gases, the future of American energy is at a crossroads — and the creation of an economic “Green Bubble” may be in the works.

It’s not surprising that liberal politicians embrace the cap-and-trade cause, but to many it is shocking and surprising to see corporate CEOs joining the crusade.  The 21st century business model of these CEOs seems to be: “If you can’t beat ’em, join ’em.”

But their capitulation is likely to lead to history repeating itself, and not in a good way.

If there’s one lesson we all can take from the housing bubble, it’s this: the pursuit of liberal policy goals is not a sustainable business strategy.

The housing crisis developed after businesses yielded to social activism and the seduction of politically-driven and unsustainable economic incentives.  It started with the Community Reinvestment Act in the 1970s, which encouraged banks to lend in poor neighborhoods.  The Clinton Administration later lowered credit standards, and set subprime lending quotas for Fannie Mae and Freddie Mac.

ACORN, the leftist advocacy group, also pressured banks to make loans, and Congress skewed laws to promote homeownership at any cost.    

With the game rigged to make unsound lending practices profitable over the short-term, Wall Street was happy to play in this government-constructed casino.  For a time, it was a win-win situation.  Profits were made, ACORN was pacified and lawmakers deemed lenders “responsible” for providing loans to low-income households with nary an eye cast to the soundness of it all.

But when the over-inflated housing market collapsed, all the fun came to a crashing halt.

Yet, like hard-core gambling addicts, some CEOs haven’t learned their lesson.  Instead of returning to selling good products at market prices, they want to go back to the craps table.  They’re lobbying Congress to create yet another “bubble” in which government regulatory policy creates artificial value in a ubiquitous gas, carbon dioxide.

Call this forthcoming disaster the “Green Bubble,” for it’s based on the notion that fortunes can be made buying and selling something for which there is no real-world market: greenhouse gas emissions credits.

In some ways, the Green Bubble is worse than the Housing Bubble because houses, unlike greenhouse gas emissions, have a real value. Making matters worse: taxpayers are being billed for its creation.

A new report by the Center for Public Integrity finds that over 2,000 lobbyists, including representatives of the financial industry, are pressing for the cap-and-trade scheme to create an artificial carbon emissions trading market that could reach an estimated $2 trillion in paper value.

According to the CPI study, lobbyists for Goldman Sachs and JPMorgan Chase are involved. JPMorgan Chase got $25 billion in TARP money last fall, while Goldman Sachs obtained $10 billion.  The stated purpose of the cash infusion was to recapitalize the banks so they could resume consumer lending. 

By promoting cap-and-trade, Wall Street is once again betting it can profit from embracing left-wing politics.  CEOs see an opportunity to garner praise for themselves as “socially responsible” businessmen while they profit from the sale of renewable energy products, such as wind turbines, and from the trading of carbon dioxide emission credits.

The taxpayer, the consumer and the stockholder will pay.

If cap and trade is adopted, whatever gains a few companies may make on investments in renewable energy or emissions trading will be paid for by the devastating effects of higher energy prices on the broader economy.  And even these gains will vanish like the wind when cap-and-trade ends.  That could happen the next time Congress switches parties, or simply when Congress becomes enchanted by the next new fad.

Tom Borelli is co-director of the Free Enterprise Project at The National Center for Public Policy Research.