Meltdown! Charting the effects of the financial crisis

Written by adam


In the wake of the financial meltdown, some have wondered about about the broader implications of the disappearance of Lehman Brothers’ carbon trading desk. And the answer to that question, at least, is easy: there are no broader implications to the disappearance of Lehman Brothers’ carbon trading desk.

This is true for a variety of reasons, not least among them that Lehman Brothers was a small player in the carbon markets. The center of gravity in the carbon-trading world is in Europe. Beyond that, the carbon market itself is just one corner of the energy finance universe. So Lehman is a corner of a corner, and anyway the disappearance of a single trading desk is nothing really to fret over.

A trickier question is what affect the broader issues in the financial markets have for the development of clean energy. And, well, it’s hard to say, as all sorts of countervailing forces are at work.

It helps to step back briefly and consider what is actually going on in the economy. The Freakonomics blog recently offered up one of the most lucid discussions of the ongoing financial crisis. I recommend the whole thing, but in a nutshell:

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  1. Tom Harrison

    This is a good analysis, Adam.
    I would have to say that the financial crisis is pretty much bad for pretty much everyone. In addition to the points you make, this issue distracts national attention from energy and climate issues — it’s a crisis that is certainly much more immediate, and most likely one that will affect us for a while.
    Easing oil prices and concomitant easing of gasoline and heating oil have made an issue that was at the forefront of our minds just a few months ago a quickly fading memory. And this issue was driving the political debate. The financial crisis will deliver a coup-de-grace for the remains of that discussion. Sigh.
    One question: does the financial meltdown affect the outcome of the Presidential election? It seems to me that our government policies are the most important single thing that can affect momentum now.
    The candidates have certainly differentiated their positions on alternative energy. Whether this is just political pandering will be seen later, but based on what they say, “Drill, baby, drill” isn’t getting my vote.

  2. Adam Stein

    Yes, the crisis is bad news all around. It’s difficult to comprehend the scope of either the problem or the proposed solution. In purely political terms, I have to imagine this hurts Republicans more than it does Democrats. This has little to do with the candidates’ positions on the issues, and more to do with the fact that a) voters tend to trust Democrats more on pocketbook issues and b) the incumbent party is more likely to be punished during an economic crisis. (I understand that Democrats now have a narrow majority in Congress, but I don’t think anyone blames the current problems on the 110th Congress. These issues have been years in the making.)

  3. Remi

    Lehman owned a subprime lender called BNC Mortgage and closed it down in August 2007 following the infamous crisis. This led to about $25 million charge and $27 million reduction in goodwill. The crisis spilled over to 2008 and Lehman

  4. Phoenix Woman

    Here’s a slightly different take on the heist, erm, bailout. (By the way: Bush may be itching to further trash our dollar by loading even more debt onto it — even the mere prospect of a $700 billion body-blow sent oil, and thus inflationary pressures, soaring — but the rest of the world isn’t exactly leaping to follow his example. Canada’s Stephen Harper has already ruled it out.)
    Do remember that Hank Paulson’s an investment banker himself — he takes care of his own first, last and always. Also, the crash could have been predicted by anyone who witnessed Phil “Americans are whiners” Gramm’s successful efforts to kill Glass-Steagall in 1999. Gramm is the guy who McCain wants for either Paulson’s or Bernanke’s jobs. What was that again about Republicans being good with money?
    Former Treasury Secretary Robert Reich has looked at the proposed heist of $700 billion — which by the way is more money than what we’ve spent in Iraq in nearly six years of war and occupation — and is but one of a growing number of experts crying foul on this deal.

  5. Phoenix Woman

    David Cay Johnston, financial writer for the NYT, is telling his fellow reporters to start doing their jobs and to stop swallowing Paulson’s tales uncritically:

    Ask this question — are the credit markets really about to seize up?
    If they are then lots of business owners should be eager to tell how their bank is calling their 90-day revolving loans, rejecting new loans and demanding more cash on deposit. I called businessmen I know yesterday and not one of them reported such problems. Indeed, Citibank offered yesterday to lend me tens of thousands of dollars on my signature at 2.99 percent, well below the nearly 5 percent inflation rate. That offer came after I said no last week to a 4.99 percent loan.
    If the problem is toxic mortgages then how come they are still being offered all over the Internet? On the main page AOL generates for me there is an ad for a 1.9% loan (which means you pay that interest rate and the rest of the interest is added to your balance due.) Why oh why or why would taxpayers be bailing out banks that are continuing to sell these toxic loans?

  6. Adam Stein

    I thought that David Cay Johnston article was interesting, but it was also fairly well demolished by Felix Salmon and Ryan Avent.
    There’s plenty of justified skepticism over whether the currently proposed bailout plan is the right one. There doesn’t seem to be as much skepticism over the question of whether the goverment ought to do something to stanch the flow.

  7. Ken Bagstad

    While the credit crunch obviously has tough implications for renewable energy financing, and may be causing real economic pain, let’s not blindly back ourselves into a “grow baby grow” mentality regarding the economy. As Joseph Canadell recently pointed out (, faster than expected growth is among the factors putting us in worse shape than ever with respect to global carbon emissions. Growth is also certainly wiping out gains in carbon intensity being made in countries like the U.S. Until we get global CO2 emissions limits in place, even growth in renewables won’t solve the problem, as we continue to see fossil fuel use expand. Climate change offers some of the best evidence yet that the size of the economy needs to respect environmental limits.

  8. Tom Harrison

    Ken Bagstad —
    I think you hit the nail on the head with your comment. As a student of economics in college, and having been in start-up businesses in the following almost 25 years, I have heard over and over the mantra that growth is the secret to success. If you’re not growing, you’re dead, the saying goes. Perhaps recent events suggest an alternative (or at least a rebuttal)?
    As one of the founders of an “inappropriately successful” start-up during the Internet boom I can assure you that growth was everything — profit, fundamental value, and anything that resembled what passed for management quality in the past was thrown out, and our company, which had been in business for 18 months was sold for an outlandish sum (hint: a little less than 1 billion dollars) to a buyer who had bought into the whole foolishness. Our gain — their stockholders loss, as it turned out (sadly, we were bought in stock, not cash).
    And in 2002 everything crashed. As it turned out, miracles don’t happen.
    Then time passes. Despite a war, which taps into our national resources, our President implores us to spend (not, for example, to plant Victory Gardens).
    And spend we did, creating more, and more growth. And of course, that was all leveraged. The over-extended credit of mortgage borrowers and credit card borrowers seems to have been used to create more leveraged instruments used by our (trusted?) financial institutions to put themselves into precarious debt, too. Spend, spend, spend.
    No Victory Gardens producing. Just spending for the sake of “grow, baby, grow”. No unified plan for the country — let the free market handle it. Oh, how I have fallen — 20+ years ago I graduated as a disciple of trickle down, supply-side and Uncle Milty Friedman. Nowadays, my views are different.
    (And, to be fair to Milton Friedman, his economic views respected external costs, such as pollution, or perhaps CO2 or other greenhouse gasses, that were not captured in the economic price models. But even Friedman, considered radical right to this day, has been ignored).
    Perhaps we can use this latest crisis, years in the making (and ignored for as many, just as the previous one, terrorism, was) to wake up finally and take ownership of what is real, versus the fantasies our leaders (of both parties) have been spoon-feeding us for many, many years.
    Learn, baby, learn!

  9. Kent

    It’s a very good article.
    At the risk of dumbing things down. All the truths of the article not withstanding, we simply cannot fail in the mission.
    As for the reference to Milton Friedman, for anyone who has even the slightest warm feelings about anything that he and The Chicago Boys have ever done Namoi Klein’s “The Shock Doctrine” will cure you forever.

  10. Jon

    Just glancing at the comments already made, and there are some good ones, I haven’t seen mentioned the simple fact that a bad economy will drive down consumption in the short term, which is a good thing for the environment because it means we’re spending less money producing trinkets that get thrown away. It’s not the best way to cut greenhouse gas emissions, but if it could bring about a change in consumer habits towards conserve, reuse, and repair rather than gorge, throw away, and replace, that could be a good thing.

  11. megacleve

    I want to commend on a very insightful article (for me), and I am frequently impressed that you are very well read, but my highest praise is for the quality of your writing: “And, of course, federal legislation continues to lurch zombie-like around the halls of congress.” That image will definitely keep me laughing all day.

  12. Adam Stein

    @10 — Jon, I actually get into that topic a bit at the end of this post. Basically, a recession might reduce consumption a bit, but it doesn’t really offer any lasting environmental benefits.

  13. AD

    I would like to suggest that every dollar spent causes carbon burning and every dollar earned came from some carbon burning. A businessman who wants a bigger house needs to run after many more customers each day. Being modest & steady life with some little surplus is the best way to live. Growth could cool down just a bit but it would allow us to live better family life – corporates would generate less wasteful rat races and we could just be happy.