NYT: The gov’t created a stupid ethanol-credit system, but it’s basically Wall Street’s fault for “exploiting” it

posted at 5:01 pm on September 15, 2013 by Erika Johnsen

If you’re ever in need of a media outlet to relentlessly spin a story to heap blame on the symptoms of a government-created problem instead of the actual disease, you know where to look.

Jazz and I have been covering the saga of stupid that is the Renewable Fuel Standard, the regulation that requires U.S. refiners to increase an ever-increasing volume of certain biofuels into the nation’s gasoline supply. The original rule was passed during the Bush administration, but the Obama administration has done everything they can to bolster and expand the RFS, and refiners must either comply with the RFS or else purchase credits known as renewable identification numbers (RINs) to effectively purchase an exemption.

The ongoing political biofuels-battle was ramped up a notch this summer as energy companies have been cautioning that we’re running up against the “blend wall,” the 10 percent threshold beyond which they warn the blended fuels will no longer be acceptable for most cars and trucks, which means demand for the credits have been spiking and prices have been rising (also perhaps exacerbated by the fact the the EPA has been trying to force companies to include a certain type of cellulosic ethanol that isn’t actually commercially available in the necessary quantities — I am never going to let that one slide, ever).

You might be thinking that the solution for this absolutely not-clean, not-green, corporate-pork-tossing government program, complete with plenty of unintended consequences (like, say, rising food prices, no big deal), would be to repeal the mandate and hence stop creating an artificial market that forces U.S. consumers to purchase something they obviously don’t want to buy. You would be wrong, however — and the NYT is here to let you know that, even though everything they’re doing is perfectly legal and the EPA isn’t even trying to point to excessive trading as a problem, those dastardly and “exploitative” Wall Street fat cats up to their old tricks must be at least partially responsible. Obviously.

A few worried that Wall Street would set out to exploit this young market, fears the government dismissed. But many people believe that is what happened this year when the price of the ethanol credits skyrocketed 20-fold in just six months, according to an analysis of regulatory documents and interviews with more than 40 people involved in the market, including industry executives, brokers, traders and analysts.

Traders for big banks and other financial institutions, these people say, amassed millions of the credits just as refiners were looking to buy more of them to meet an expanding federal requirement. Industry executives familiar with JPMorgan Chase’s activities, for example, told The Times that the bank offered to sell them hundreds of millions of the credits earlier this summer. When asked how the bank had amassed such a stake, the executives said they were told by the bank that it had stockpiled the credits. …

While banks are by no means the largest player in ethanol credits, Wall Street’s activity in this market reflects a larger effort by financial institutions to exert their influence over loosely regulated markets for basic commodities, from aluminum to oil. The opacity of the ethanol credit market makes it difficult to determine the extent to which large financial actors have profited.

The banks say they have far less influence in the market than others are suggesting, and are doing nothing wrong. But the activities, while legal, could have consequences for consumers. In the end, energy analysts say, the outcome will be felt at the gas pump — as the higher cost of the ethanol credits gets tacked onto the price of a gallon of gasoline. (The credits, which cost 7 cents each in January, peaked at $1.43 in July, and now are trading for 60 cents.)

ZOMG, Wall Street actively engages in — gasp — speculation?! Mind = blown.

Wall Street’s interest in renewable fuel credits are not the problem behind rising gasoline prices — the renewable fuel credits themselves are the problem. The RFS is not, as the NYT refers to it, an “environmental program,” and everybody knows it, but they seem to be oh-so-gently suggesting that the answer here is still further financial regulation, instead of just flat-out repeal. Unbelievable.


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Don’t use corn squeezin’s in my truck…

OmahaConservative on September 15, 2013 at 5:04 PM

This post is racist/progressive logic

rob verdi on September 15, 2013 at 5:04 PM

…gasoline condoms!

KOOLAID2 on September 15, 2013 at 5:05 PM

…you cover it…and cover it well…whose Jazz?

KOOLAID2 on September 15, 2013 at 5:07 PM

What I really like about the EPA is that it’s stupid and arrogant.

John the Libertarian on September 15, 2013 at 5:12 PM

Wait, I got that backwards.

John the Libertarian on September 15, 2013 at 5:13 PM

Clearly Democrats hate starving children… They would rather we burn food than have it available for them to eat

The Dems war on starving children continues….

Caseoftheblues on September 15, 2013 at 5:14 PM

Clearly Democrats hate starving children… They would rather we burn food than have it available for them to eat

The Dems war on starving children continues….

Caseoftheblues on September 15, 2013 at 5:14 PM

(:->)

KOOLAID2 on September 15, 2013 at 5:20 PM

“Children of the Corn”,

Er,

“DemoTards/ProgTards of the Corn”!!
(sarc)

canopfor on September 15, 2013 at 5:21 PM

ZOMG, Wall Street actively engages in — gasp — speculation?! Mind = blown.
=======

Erika,…….for the love of gawd,keep it down,
or Hopey will go on a week speechy tour,on the

EVIL SPECULATORS!!!!!!
(kidding)

canopfor on September 15, 2013 at 5:24 PM

If you think the problems that leftist government makes are bad, wait until you see their solutions.

jukin3 on September 15, 2013 at 5:38 PM

Hey New York Times! THIS is what YOU are supposed to be doing.

Thanks, Ms. Johnson, for watching the watchers.

Cleombrotus on September 15, 2013 at 5:43 PM

Sorry for the O/T, but Syria is allegedly sending WMD’s back to Iraq…..Irony can be pretty ironic at times. From the Jerusalem Post:

Syria has moved 20 trucks worth of equipment and material used for the manufacturing of chemical weapons into neighboring Iraq, the Lebanese daily Al-Mustaqbal reported on Sunday.

The government in Baghdad has denied allegations that it is helping the Syrian government conceal chemical stockpiles.

http://www.jpost.com/Syria-Crisis/Report-Syria-transported-chemical-weapons-to-Iraq-326141

Johnnyreb on September 15, 2013 at 5:59 PM

The NYT = you can’t fix stupid.

GarandFan on September 15, 2013 at 6:21 PM

This paper epitomizes the liberal business model. Failure

pat on September 15, 2013 at 6:28 PM

The blend wall is death to motorcycles. Perhaps that’s one reason that the zealots in the Nanny Party want to push it.

FiveG on September 15, 2013 at 6:44 PM

I can’t wait until the auto makers won’t warrant their cars engines.Anything with a motor that uses gas will follow suit.Who will pay $25-30,000 for a car with no warranty that might burn up in the first month?

docflash on September 15, 2013 at 6:56 PM

Conservatism: Personal responsibility for welfare recipients, but not for corporations who simply “can’t help themselves.”

libfreeordie on September 15, 2013 at 7:03 PM

libfreeordie on September 15, 2013 at 7:03 PM

If no one is buying cars or anything with a motor that burns up because of the fuel mix those corporations who simply “can’t help themselves” will be out of business along with all of those jobs and taxes they pay.You be the first to fill up with 15% ethanol if you even have a car.Let us know how it goes.

docflash on September 15, 2013 at 7:10 PM

Conservatism: Personal responsibility for welfare recipients, but not for corporations who simply “can’t help themselves.”

low-information perfesser on September 15, 2013 at 7:03 PM

Didn’t understand the article huh?

slickwillie2001 on September 15, 2013 at 7:20 PM

The NYT = you can’t fix stupid corrupt.

GarandFan on September 15, 2013 at 6:21 PM

Cleombrotus on September 15, 2013 at 7:40 PM

NYT: The gov’t created a stupid ethanol-credit system, but it’s basically Wall Street’s fault for “exploiting” it

Wait. That sounds very … familiar.

Almost deja vu

Something about the government creating a perverse system where they reward banks for making bad loans, then blame the resulting problems on Wall Street.

Something like this.

There Goes the Neighborhood on September 15, 2013 at 10:25 PM

I’ll admit I’m confused. Where do these credits come from in the first place? Why can’t we eat in on this? I’m in California and we have a lot of hemp lying around. That what we’re calling it. On the other hand, if my car ran on 10% hemp, I have to pull into every drive through in LA.

danielreyes on September 15, 2013 at 10:37 PM

Conservatism: Personal responsibility for welfare recipients, but not for corporations who simply “can’t help themselves.”
libfreeordie on September 15, 2013 at 7:03 PM

Just because this article isn’t about diddling high school boys, doesn’t mean you are not obligated to be lucid and remain on topic.

If you refuse to make sense, go back to shaving your coin purse and leave us alone.

Maddie on September 15, 2013 at 11:29 PM

What’s really interesting is how these corn subsidies to farmers is encouraging them to take highly erodible land out of CRP & dig it up to plant corn that will most likely fail as a crop, only to collect $$ on Federally subsidized crop insurance.
I’m watching it in my fracking back yard people.

Badger40 on September 16, 2013 at 7:40 AM

Badger40 on September 16, 2013 at 7:40 AM

Shhh, or else our “libby” will be all over that sweet, hot, Government fail action…!

Wanderlust on September 16, 2013 at 9:55 AM