Blog on the Run: Reloaded

Saturday, September 27, 2014 6:40 pm

How Koch Industries could blow up financial markets again


If you liked 2008, you’ll love what could happen next:

Koch is also reaping the benefits from Dodd-Frank’s impacts on Wall Street. The so-called Volcker Rule, implemented at the end of last year, bans investment banks from “proprietary trading” – investing on their own behalf in securities and derivatives. As a result, many Wall Street banks are unloading their commodities-trading units. But Volcker does not apply to nonbank traders like Koch. They’re now able to pick up clients who might previously have traded with JPMorgan. In its marketing materials for its trading operations, Koch boasts to potential clients that it can provide “physical and financial market liquidity at times when others pull back.” Koch also likely benefits from loopholes that exempt the company from posting collateral for derivatives trades and allow it to continue trading swaps without posting the transactions to a transparent electronic exchange. Though competitors like BP and Cargill have registered with the CFTC as swaps dealers – subjecting their trades to tightened regulation – Koch conspicuously has not.

So, basically, Koch can now do to the nation’s and the world’s commodities markets what it has done to our air and water. And Congress, its morals and environmental concerns lubed by tens of millions in Koch lobbying money, is letting the company go right ahead and do that. And it will do it; the company’s regulatory and criminal record is one of almost unrelieved violations, punctuated only by fines that, while perhaps big in historical terms, are no more than a minor annoyance to the company’s balance sheet. More than enough evidence exists to level a RICO charge against CEO Charles Koch.

That a massive company with such a troubling record as Koch Industries remains unfettered by financial regulation should strike fear in the heart of anyone with a stake in the health of the American economy. Though Koch has cultivated a reputation as an economically conservative company, it has long flirted with danger. And that it has not suffered a catastrophic loss in the past 15 years would seem to be as much about luck as about skillful management.

What Congress does not seem to grasp is that luck and hope are not plans. Meanwhile, Koch Industries is doing its own planning:

In “the science of success,” Charles Koch highlights the problems created when property owners “don’t benefit from all the value they create and don’t bear the full cost from whatever value they destroy.” He is particularly concerned about the “tragedy of the commons,” in which shared resources are abused because there’s no individual accountability. “The biggest problems in society,” he writes, “have occurred in those areas thought to be best controlled in common: the atmosphere, bodies of water, air. . . .”

But in the real world, Koch Industries has used its political might to beat back the very market-based mechanisms – including a cap-and-trade market for carbon pollution – needed to create the ownership rights for pollution that Charles says would improve the functioning of capitalism.

In fact, it appears the very essence of the Koch business model is to exploit breakdowns in the free market. Koch has profited precisely by dumping billions of pounds of pollutants into our waters and skies – essentially for free. It racks up enormous profits from speculative trades lacking economic value that drive up costs for consumers and create risks for our economy.

That is a business model for whose banning we have more than sufficient justification. Koch Industries is the industrial and financial equivalent of a serial killer. It has killed many times, and left unimpeded, it is certain to kill again many more times.

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1 Comment »

  1. Rather, the Libertarian and Christofascist Nazis who infest our legislature and universities will have Market Based Mgmt as the biz school curriculum, lest one resource or law go untrampled. Unbelievably, ALEC stands in the shadow of Koch Industries’ past and future villainy.

    Comment by Jeff — Sunday, September 28, 2014 10:51 am @ 10:51 am | Reply


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