Favorite moment from the Enron Energy Traders gloatfest:
Employee 1: He just f——s California. He steals money from California to the tune of about a million.
Employee 2: Will you rephrase that?
Employee 1: OK, he, um, he arbitrages the California market to the tune of a million bucks or two a day.
Always nice to see those technical financial terms (“f——k”) explained in terms the layman can understand (“arbitrage”). I’m sure the whole thing was the fault of a few bad apples.
The thing you always have to remember about the California debacle is that, practically speaking, California begged the traders to please, please, please come in and rob us blind. California: froze retail prices, freed wholesale prices, refused to build enough transmission, refused to build enough generation, and then set up a “competitive” market with a whole host of arbitrary – read, stupid – rules that allowed traders to follow the rules and make ungodly profits. Surprise, surprise, traders did. The traders, being traders after all, enjoyed themselves immensely and, largely being a bunch of guys in their 20s and 30s, did so in a swaggering and profane way. The lesson, as always, is, the rules matter.
Bull is correct.
If California hadn’t been wearing that sexy red dress, this never would have happened.
Sexy red dress – actually, I try to avoid rape metaphors. It’s less provocative, and perfectly accurate, to note that the California government left huge piles of cash lying around, wrote laws saying that if, say, you sold a kilowatt to someone in Arizona and then bought the kilowatt back again you could have that huge pile of cash, and then was shocked that people took the huge piles of cash. I do agree that, in a perfect world, necessarily inhabited by some species other than humans, the traders wouldn’t have taken the piles of cash.
actually, I try to avoid rape metaphors
You wouldn’t have fitted in all that well on the Enron trading floor then.
The way power companies created the crisis there: so-called “capacity withholding”, mostly by taking powerplants off-line for phony maintenance - is totally illegal. Thus the rape analogy holds. Had the power companies obeyed the law, there wouldn’t have been any energy crisis in CA. There was enough supply to satisfy the demand.
Now, it doesn’t mean the CA politicians are blameless - we live in the real world where people do break the law when they feel they can get away with it - but even so, it seems kinda tasteless to blame the victim.
“The thing you always have to remember about the California debacle is that, practically speaking, California begged the traders to please, please, please come in and rob us blind.”
There is a not subtle difference in moral turptude between being a crime victim, however foolish, and being a criminal.
If by “a few bad apples” you mean “plutocrats”…
Funny, when I thumb back through my well-worn volume of Mueller’s “Public Choice II,” I don’t find any mention of “Fucking the Commons.”
There is also a not so subtle difference between being a criminal — breaking the law — and legally taking advantage of poorly written laws, similar to the difference between tax evasion and tax avoidance. The latter — taking advantage, avoiding — constitutes the vast majority of what the Enron traders were snickering about.
The Enron traders were not “plutocrats,” by the way. They were mostly mid-level to lower-upper-level, extremely intelligent, quick, nervy cowboys.
It seems that CA made the mistake of trusting the private sector when applying a private sector solution.
The latter — taking advantage, avoiding
I think they called it fucking. Hard to tell from the typing. From their own self-characterization, it seems the culprits would be likely to disagree with your characterization.
Then again, the little guy is just here to get fucked, so it’s not like they were doing anything they (or Microsoft or Intel) don’t do every day. Fuck whom you can to get what you can simply because you can. You can buy good PR later, as if you care.
extremely intelligent, quick, nervy cowboys.
Then you must be one of their escaped steers. Mooo. Nice bull.
What they did was illegal. Not “taking advantage”, but committing crimes. Manipulating prices is illegal.
Enron Investigators Expand Probe To California Energy Trading
Washington Post Staff Writers…
Enron’s former chief West Coast trader, Timothy N. Belden, pleaded guilty in October to federal fraud charges. He admitted that he helped rig electricity prices there through strategies with code names such as “Death Star” and “ricochet” and has promised to point prosecutors toward others involved in manipulating prices.
…
So someone pleaded guilty after being Abu Ghraibed – if you don’t confess, we’ll force you to hire a lawyer who’ll suck all of your money out of you, and since defending such a complex case takes more money than you have you’ll lose anyway, and then since you didn’t cooperate we’ll send you away for a l-o-o-o-o-o-ng time. So why don’t you just cooperate? They got their confession, and — surprise, surprise — he “has promised to point prosecutors toward others involved in manipulating prices.” I’m not impressed.
I too struggle with that age old dilemma. When I see innocent rate-payers being gouged to the tune of billions of dollars due to the stupidity of legislators and the greed of politically connected utilities and traders, I am forced to choose - sympathy or schadenfreude?
How about this. The traders were bad actors and California was stupid. There. Can’t we all just get along?
“It seems that CA made the mistake of trusting the private sector when applying a private sector solution.”
The argument for privatization has nothing to do with trusting the private sector to act in the public interest. Privatization is setting up a legal regime where private and public interests coincide. Corporations are amoral economic actors. That’s not how California’s energy regulations worked.
I’m not at all convinced that the energy traders did anything illegal. Whenever energy prices spike politicians accuse the energy industry of illegal activity because the only alternatives are that the government is at fault (which politicians obviously don’t want to admit to) or it’s a simple case of natural supply or demand shifts (which the public doesn’t want to hear; they want to blame somebody).
California foolishly allowed sellers with large amounts of monopoly power to go unregulated, so they manipulated the market by withholding supply, which is how you take advantage of monopoly power. They needed to use their buy side power to lock the companies into long term contracts at reasonable (low) prices.
My favorite libertarian argument is that they should have deregulated retail prices. So consumers would have held off buying electricity until the price went down? Right. The power companies had market power; they used it. You can’t shop your way out of that. You think California state government wasn’t trying to?
Xavier: “natural supply and demand shifts”??? What a coincidence that we have only seen them in California during the deregulation period.
California foolishly allowed sellers with large amounts of monopoly power to go unregulated, so they manipulated the market by withholding supply, which is how you take advantage of monopoly power. They needed to use their buy side power to lock the companies into long term contracts at reasonable (low) prices.
My favorite libertarian argument is that they should have deregulated retail prices. So consumers would have held off buying electricity until the price went down? Right. The power companies had market power; they used it. You can’t shop your way out of that. You think California state government wasn’t trying to?
Xavier: “natural supply and demand shifts”??? What a coincidence that we have only seen them in California during the deregulation period.
if you don’t confess, we’ll force you to hire a lawyer who’ll suck all of your money out of you, and since defending such a complex case takes more money than you have you’ll lose anyway
So? What are you bitching about, that this isn’t fair?
“My favorite libertarian argument is that they should have deregulated retail prices. So consumers would have held off buying electricity until the price went down?”
You’re absolutley correct mq. Quantity demanded doesn’t decline when the price rises! Those silly libertarians!
This was not just a few bad apples. These morons were part of the lie that was the “energy” crisis for CA. Rolling blackouts with fat suits getting rich while the rest of CA sweated like pigs in the heat. Energy is not a problem for CA. Criminals hiding amongst the energy industry and the government are.
Yeah, right. “Arbitraged,” as in “Bush has really arbitraged the US for the next decade.”
And it wasn’t just Enron. They couldn’t do this alone. The memos that discuss the “death star” and “richochet” make it very plain that other companies were absolutely necessary to the price-rigging. Two that were named were Puget Sound Energy and BC Hydro.
Here’s a funny story about that.
When the electric spot prices jumped in late 2000, in the Puget Sound region all the oil refineries, aluminum mills and at least one pulp mill went off the grid on the same day. Each one of these industrial users drew as much power as a large city.
So they all pulled the plug and shut down. Thereby shedding a huge amount of load. Did prices change at all? Nope.
They then brought in large portable generators (the size of semi trailers) and installed huge generator farms. So when those that started back up got going, they were still off the grid.
And the “rolling blackouts” in California continued. With no change in spot prices.
Supply and demand don’t apply to cartel pricing.
Get it?
“You’re absolutley correct mq. Quantity demanded doesn’t decline when the price rises! Those silly libertarians!”
My point was that the demand elasticity for essential goods tends to be rather low (in absolute value, that is). Not high enough to remove massive profit rates from manipulating prices in a market with large economies of scale and therefore few effective providers. Perhaps you should actually move on to chapter 2 of your intro to economics textbook before you start spouting off.
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