When you drag commerce into the arena of government, it's always a home game for the big guys.
When Congress created an ethanol mandate in 2005 and expanded it in 2007, this was widely, and correctly, derided as a political gift to the ethanol industry. But it's worth noting that big Wall Street players were also pushing for the ethanol mandate.
In fact, Goldman Sachs lobbyist Mark Patterson was lobbying on ethanol within a year of becoming Treasury Department chief of staff in the Obama administration.
When I write about the big guys lobbying for and profiting from big-government, some liberal bloggers yawn and ask "who cares if someone's getting rich?" (See, for instance, Brad Plumer, Matt Yglesias, Ezra Klein.)
But figuring out who believes they will profit off of a law can help us detect flaws in the law we may not have previously detected. In other words, we should ask "what are these lobbyists seeing that we're not?"
In the case of the ethanol mandate, that flaw may be the ability of big banks to rig the market in ethanol credits.
Gretchen Morgenson and Robert Gebeloff at the New York Times tell the story:
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.
[O]ther market participants, including Thomas D. O’Malley, chairman of PBF Energy in Parsippany, N.J., identified JPMorgan Chase and other financial institutions as being active sellers of the credits this year. He said the institutions had helped transform an environmental program into a profit machine, contributing to the market frenzy this year. “These things were designed to monitor the inclusion of ethanol in the gasoline pool,” Mr. O’Malley said. “They weren’t designed to become a speculative item. For the life of me I can’t see the justification for it.”
Again, following the money and the special-interest lobbying leads us to a dynamic where we see the companies supporting the regulations are profiting off them in a way that doesn't serve the public interest, it seems.
Loren Steffey at Forbes has a good analysis.
footnote: Thomas O'Malley, the refiner quoted above, has an interesting view on regulations, as quoted in the L.A. Times a few years back:
"My view for the industry was: Why in the world would you fight clean fuels? That's what the consumer wants," O'Malley, now the chairman of Connecticut refiner Premcor Inc., said in an interview. Make no mistake about it, the more stringent you make specifications, those become barriers to entry…. Strong companies would have an advantage."