e-Marketing: Nov 9, 2010

Tuesday, November 09, 2010

Pennsylvania to Become 'Gasland'?

Pennsylvanians set to take on gov't, industry, and Karl Rove over one of world's largest gas deposits

On the day after the midterm elections, the outline of Pennsylvania's next battleground was clearly drawn. Pittsburgh hosted the largest conference of companies interested in the massive Marcellus Shale gas deposit, thought to hold enough gas to power the entire US for anywhere from two to 30 years. Drilling communities around the country report serious environmental and public health concerns. Pittsburgh itself already has gas development surrounding it, and hundreds marched to the conference to show their objection. We spoke to Josh Fox, maker of the documentary 'Gasland' and opponent of drilling in his rural Pennsylvania community. We also spoke to Leslie Haines, editor-in-chief of Oil & Gas Investor magazine.

Produced by Jesse Freeston and Malak Behrouznami.

Transcript

JESSE FREESTON, PRODUCER, TRNN: Welcome to The Real News Network. I'm Jesse Freeston at the Pennsylvania State Capitol building in Harrisburg. This building is going to have a new occupant, after Republican Tom Corbett won the governor race by 10 percentage points.

TOM CORBETT, GOVERNOR-ELECT FOR PENNSYLVANIA: It's now time to come together, to tell the rest of the world—to tell the rest of the world Pennsylvania is open for business.
FREESTON: And that business is natural gas. Pennsylvania's race was unique in that it was fought primarily over the question of what to do with the massive Marcellus Shale natural gas deposit. Corbett ran on the platform that the industry needs to be opened immediately and without taxation.
CORBETT: We are the Saudi Arabia of natural gas if we develop it and develop it now.
FREESTON: If current estimates are correct, then the Saudi Arabia example may not be far off. Predictions are putting the amount of shale gas in the Marcellus in the trillions of cubic feet. Said another way, these estimates suggest that the entire energy needs of the United States could be met from anywhere from 2 to 30 years by the Marcellus Shale gas alone, with potential revenues reaching into the trillions of dollars, and all of this right in the middle of some of the world's most energy-hungry cities. On the day after the midterm elections, Pittsburgh played host to the year's largest conference of companies looking to develop the Marcellus Shale. It was organized by Hart Energy Publishing. The Real News to spoke to Leslie Haines, editor-in-chief of their flagship publication, Oil and Gas Investor.
LESLIE HAINES, EDITOR IN CHIEF, OIL AND GAS INVESTOR: The USGS geological survey is now saying this could be the second largest natural gas field in the world. Only larger ones are in the Middle East or in Russia. So it's extremely exciting for the US oil and gas industry, but it's going to be important for the consumer, too, because natural gas burns way cleaner than coal or oil. We have 100 years' supply.
FREESTON: The conference featured hundreds of the world's leading extraction companies, like Halliburton and Shell. The keynote speaker was Karl Rove, former senior adviser to President George W. Bush.
UNIDENTIFIED: This is the official Karl Rove welcoming committee.
FREESTON: Hundreds of people marched to the conference center to show their opposition to the drilling, based on its effects on the environment and human health. The process for getting the gas is known as hydraulic fracturing, or fracking for short. It involves drilling anywhere from 3 to 11,000 feet below the earth's surface, setting off explosives, then pumping millions of gallons of water mixed with sand and chemicals until the pressure fractures the shale rock below, releasing the gas into the well.
JOSH FOX, FILMMAKER: We're going to leave a message for the next governor. I have his phone number. Do you want to leave him a message?
FREESTON: Firing up the crowd was filmmaker Josh Fox, a Pennsylvanian native who turned down a lucrative deal to lease his mineral rights for drilling. He then went on to make the documentary Gasland, which won the 2010 Special Jury Prize at the Sundance Film Festival. Fox's film documents the effects of fracking on families across the United States, where the process is already taking place.
UNIDENTIFIED: Rhonda got really sick with extreme neuropathy and is in a lot of pain [snip] through spinal taps and everything to try to find a cause.
UNIDENTIFIED: It just seems like in the last year and a half I'm never healthy. And I've always been healthy.
UNIDENTIFIED: I won't drink it. When Cabot [Oil & Gas Corp.] and them came in to get the water and they were telling me it was okay to drink, I said, well, here, go ahead and drink it, and they wouldn't drink it.
~~~
UNIDENTIFIED: His hair's falling out.
UNIDENTIFIED: Yeah. And he's losing weight.
~~~
UNIDENTIFIED: Hello?
UNIDENTIFIED: Hi. How are you? This is Josh Fox, and I'm with citizens from the city of Pittsburgh. We'd like to leave a message for Tom Corbett. We'd like to say, we are going to ban hydraulic fracturing in the city of Pittsburgh and we are going to ban it in Pennsylvania.
~~~
FREESTON: On the other side of the state, in Harrisburg, organizers with No Fracking PA set up a lemonade stand offering passersby free lemonade made with tap water from the town of Dimock, where fracking has already begun.
BEN KETCHUM, ORGANIZER, NO FRACKING WAY PA: There was the Bush-Cheney energy task force that gathered the industry together to decide what America's energy policy was going to be over the next decade or so, and in that policy was written in an exemption now known as the Halliburton loophole, which exempts frack drilling operations from the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Superfund law. And that's really given the industry the go-ahead to be able to decimate these areas.
FREESTON: Exempt from these regulations, fracking companies aren't required to reveal to regulators the chemicals they're using. But tap water in communities like Dimock have been found to contain chemicals like benzene and toluene, which are believed to cause cancer, brain damage, and other ailments. Haines says that no connection has been proven between drilling and contamination.
HAINES: The fracturing of the wells to create the flow of gas up to the surface, we've been doing that as an industry for 60 years. Over 1 million wells in the US have been fracked with no incidents, no proven contamination of drinking water.
FOX: The Pennsylvania Department of Environmental Protection just ordered a $12 million pipeline to replace water for citizens of Dimock whose water had been contaminated by gas drills. They proved that. They have proven that that gas is from Cabot Oil & Gas. And so the industry will continue to come out and say there's not a single proven case and we didn't do anything wrong, but this is in contradiction to the science.
RON GULLA, PENNSYLVANIA FARMER OPPOSED TO FRACKING: I see the kids that have rashes, the kids that are having diarrhea, the kids that are throwing up. I've seen the cattle that have died. I've seen all this. It's heartbreaking. And they want to deny it. You cannot be exempt from clean air, clean water, safe drinking water, the right to know, and the Superfund act and be a benign process. No one knew that when we signed leases. We signed them in '02. Everything got passed in '05. They were preparing themselves.
FOX: Without the exemptions, they would be out of business. They cannot do this without passing along the costs to you, to the taxpayers—your health-care bills, in water bills, in cleanup bills.
FREESTON: In his keynote address to the drilling conference, Karl Rove stressed that Republican electoral victories would assure that regulation won't get in the way of the industry's development. Water regulations like the Clean Water Act and Safe Drinking Water Act came into being in the early 1970s during a period of high environmental activism and outrage around the 1969 Cuyahoga River fire in Cleveland. Today in some natural gas communities exempt from this regulation, the water is on fire once again.
~~~
UNIDENTIFIED: Whoa! Jesus Christ.
FOX: Don't drink this water.
~~~
FOX: There's one clip that's famous, but we have several instances of that going on in the film. It's something that I heard about all across the nation. People were watching the film and then looking around and saying, oh, we've got gas wells in our neighborhood. Lo and behold, they can light their water on fire. And they're living with those emissions coming out of their sinks.
FREESTON: Fox's film has been the central education tool for opponents of drilling in Pennsylvania, with public screenings taking place around the state, screenings that drew the attention of Pennsylvania Homeland Security.
FOX: Let me just ask, first of all, is anybody here from Homeland Security?
FREESTON: According to an internal document leaked to the press, the Pennsylvania government was monitoring drilling opponents, antiwar groups, people opposing deportation of migrant workers, and other activist organizations. The document included a report on when and where Gasland was being screened. Outgoing Democratic governor and fracking supporter Ed Rendell said he had been unaware of the program and would not renew the $125,000 intelligence contract. Since then, further documents have shown that Homeland Security was actively recruiting a network of spies and sharing all reports of the list of 731 contacts, including numerous private corporations. Pennsylvania Homeland Security chief James Powers emailed the report to private gas drilling companies themselves, writing, quote, "We want to continue providing this support to the Marcellus Shale formation natural gas stakeholders while not feeding those groups fomenting dissent against those same companies." Powers has since resigned.
FOX: Even though the story has kind of left the media, don't forget that it's people like you who came out to see Gasland, who came to protest, who were labeled terrorists, environmental extremists prone to criminal activity.
FREESTON: A key theme of Fox's film is the abandonment that victims of gas drilling experience when they have no government institution to turn to for help.
~~~
UNIDENTIFIED: —weeks, they contacted Mike by phone and said, we've tested your water; there's nothing wrong with your water.
UNIDENTIFIED: With this?
UNIDENTIFIED: With this.
~~~
UNIDENTIFIED: No one should ever have to go through what I went through, and call them crying, begging for help, and be told no. And that's where the system is broken.
FREESTON: Proponents say natural gas is a clean path to energy independence. The most visible voice has been billionaire T. Boone Pickens. The former oil company executive has been gathering powerful allies, from Avatar director James Cameron to CNN founder Ted Turner, the largest private landowner in the United States.
T. BOONE PICKENS, FOUNDER, PICKENSPLAN.COM: You've got to go all-American and get off the oil you're buying from the enemy.
FOX: This is not what T. Boone Pickens says, America's energy independence; this is more dependence on T. Boone Pickens.
FREESTON: Fox says that it's a question of priorities.
FOX: We want to spend $700 billion on the transition to natural gas, which over the last 50 years, $350 billion for power plants, $350 billion for pipelines that they're going to [inaudible] main through everybody's front yard. Do you want that? Or should we start working on clean, renewable energy right now that will last forever?
FREESTON: Pro-drilling Republicans have the governorship and control of both the federal and Pennsylvania houses. A few Democrats have sponsored a law to bring fracking under existing regulations, but during his post-election press conference, President Obama twice highlighted natural gas drilling as a point of unity with the Republicans.
PRES. BARACK OBAMA: So let's find those areas where we can agree. We've got, I think, broad agreement that we've got terrific natural gas resources in this country. Are we doing everything we can to develop those?
FREESTON: With little political representation, opponents of drilling in Pennsylvania are facing slim chances of stopping the gas rush through the legislative process.
FOX: Because this is going to be very, very difficult. You need to get ready to do this quite a bit. You need to also probably get ready to do civil disobedience.
FREESTON: The amount of drilling permits and leases in Pennsylvania are exploding as we speak, and it appears that the boom is just around the corner. Join us for part two on The Real News Network as we explore the economics of the Marcellus Shale boom.
End of Transcript

Banks to Cash-In Again on New Fed Plan

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November 9, 2010

Banks to Cash-In Again on New Fed Plan

Naked Capitalism's Yves Smith: Fed's $600 B cash injection may do no more than increase banker profits

Transcript

PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay, and we're coming to you today from the PERI institute in Amherst, Massachusetts. And now joining us to talk about the $600 billion Fed move and what does it mean to the economy and to all of us is Yves Smith. Yves is the creator of the influential financial blog Naked Capitalism, author of ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism. Thanks for joining us.

YVES SMITH, BLOGGER AND AUTHOR: Thanks so much. My pleasure to be here.
JAY: So let's see if I have this right. The Fed's going to take $600 billion and buy government bonds that are owned by the big banks, except they're not just going to buy them from the banks; they're going to let other people buy them from the banks and then sell them to the Fed and make money on that. I mean, the whole thing seems rather bizarre. The critics are saying that this move, as many other moves at the Fed, seem to have absolute benefit for the big banks and relative to dubious benefit to the economy. So what's your take?
SMITH: I would agree with that. What we've had, the Fed has been engaged in two efforts, only one of which has been somewhat successful. They've been trying on the QT to shore up the balance sheets of the banks. They had explicit programs during the crisis. You remember they had an alphabet soup of different rescue programs. And their second effort has been to have very low interest rates, in the hopes that bank would go out and lend in order to stimulate the economy, but also just to make a big spread between the low lending cost, the low borrowing cost, and what they were lending it on.
JAY: They're getting money at zero.
SMITH: They're getting money at zero, exactly. Now, what's in fact turned out is that the banks have gone and instead have basically bought a lot of Treasuries. A significant amount of what they have done is, instead of lending, exactly, just go and purchase Treasuries. And even on that they've gotten a very big yield between, again, a zero cost to funding, or very close to zero cost of funding, and what they get on the Treasuries.
JAY: So they're getting zero money here.
SMITH: Right.
JAY: They go and buy T-bills.
SMITH: Exactly.
JAY: And they're earning interest on the T-bills.
SMITH: And they earn an interest.
JAY: So one arm of public money is financing them to earn money from another arm.
SMITH: Exactly. Exactly.
JAY: It's a good business, but you need a lot of money to get into that business, don't you?
SMITH: You need a lot of money to get into that business, exactly. And the whole point is that the banks have a lot of losses they haven't yet recognized in the crisis, so this is a way to basically—without having any bills go through Congress that would be very unpopular, to recapitalize the biggest banks, which are the weakest. Now, then the Fed has another set of stories that it tells, and I honestly think that [Ben] Bernanke actually believes his PR. He has stories like this in various papers, but he said it in a more straightforward fashion in an op-ed in The Washington Post the day after the $600 billion so-called quantitative easing program was announced. First thing he said, this program has worked so far, which is absolutely untrue. The Fed did a first round of quantitative easing, and obviously we're still at 10 percent—.
JAY: Okay. For everybody that hasn't heard this yet, quantitative easing, if I understand it correctly, is increase the money supply, except I don't want to say that, and they keep coming up with these cockamamie—.
SMITH: It's specifically that they go out and do it by buying Treasury bonds, and they do it—the argument is they are doing it to lower yields, not just on short-term money, but to lower it on, you know, 10-year money, 30-year money that the Treasury borrows out. So the idea is if we lower—the theory is that if we lower rates on the lowest-risk assets, which are Treasury bonds, therefore it will lower rates on all the other assets, like mortgage bonds, and it will make equities a more attractive purchase. Basically, to put it another way, the notion is that by making Treasuries so unattractive to own, by making the interest you could earn on them so low, that investors will have to go out and buy riskier assets.
JAY: In other words, get back in the stock market.
SMITH: Get back into the stock market or get back into real estate, like a bubble.
JAY: So let's create a stock market bubble—
SMITH: Exactly.
JAY: —to supposedly get the economy running.
SMITH: And that's the whole problem with this logic is the first time any central bank went on this program was Japan in the bubble era. Japan had a problem then that they had a very big export sector and very little in the way of domestic consumption, and they were getting a lot of pressure, particularly from the US, because it was such a mercantilist policy and it was taking so many jobs from a lot of other countries, but particularly, you know, the US. And Japan is de facto a military protectorate, so we do have a little leverage over Japan, unlike, you know, the situation we have now with China. So the Japanese went to engage in a similar program at very low interest rates to try to stimulate consumption, and the notion was, we're going to pump up asset prices, we're going to pump up real estate and stock market prices, and everybody will feel richer and they'll spend more. Well, of course, all that they got out of that was a bubble and a 20-year bust. So this program has no history of success.
JAY: And a lot of furious retired people.
SMITH: Yes. Yes.
JAY: Which is a lot of what drove this election last Tuesday is anyone that hopes to live on interest income is furious right now.
SMITH: Exactly.
JAY: More than furious. They're getting poor.
SMITH: Exactly. So if we have the first part, which is it didn't work in Japan, then we tried it when the economy was weak—you know, it was a different fact set then in Japan. [inaudible] when the economy is weak. QE1, there was one study done by a California academic who said that—Jim Hamilton, who said that for—.
JAY: QE1—quantitative easing one.
SMITH: Quantitative easing one. Right.
JAY: Not the the vote.
SMITH: Not the vote. Yes, exactly. QE1, quantitative easing one, because the Fed had an earlier program where they bought something like $300 billion worth of Treasury bonds and slightly over $1 billion of mortgage-backed securities, and he found that they only lowered long-term interest rates by 17 basis points. So that's 0.17—17 hundredths of a percent. So for all the money they spent, it had only a very small impact on interest rates and obviously no impact on the economy. You know, it was Einstein who said, defined insanity as repeating the same behavior and expecting different results.
JAY: Okay. I'm a great believer that Bernanke and anyone that succeeded on Wall Street is not insane. So if the objective they're claiming it is is—ain't going to work, it means there is an objective that is going to work. So let's back up a second. A whack of cash is now being put back into the hands of the big banks, they're still making the spread on T-bills, and now they are selling off the T-bills. Why? Isn't one of the reasons is they're taking the cash now and they're going to Brazil and they're going to other places where they can earn even bigger spreads on their zero percent money?
SMITH: That's correct. But that's the big concern is that, you know, there's a big pushback [from] a lot of the other banks and policymakers in other countries, because they say all this is going to do is stimulate inflation, that we're going to have resumption—another finance term—of what is called the carry trade, which happened in Japan when, after Japan's bubble era, they had a protracted period of very low interest rates. And what other investors would do is they would borrow in yen because the borrowing rate was very low, and then they would go buy assets in other currencies. And that—because—and when you do that, you actually wind up selling the yen, because if you're going to—again, if you borrow in yen and you're going to, say, invest in the New Zealand stock market, you have to sell your yen to buy New Zealand dollars. So the act of selling the yen makes the yen go down. So the the low interest rates and then the falling currency go together in this sort of carry trade. And the big risk is that [inaudible] something's going to change and the yen goes up relative to the New Zealand dollar. You lose more on the currency than you saved on the interest rate. There is a risk in that trade.
JAY: So let me ask you a question. Is the reality of what's happening here—forget all the rhetoric coming from the Fed and other places. It wasn't that we were, a year and a half, two years ago, looking into the abyss. The finance system and the global economy was hanging on by fingernails, dangling. And what they've been able to do now is cover up the fact that we're kind of still hanging, the finance system is still dangling, because there's so much bad, toxic stuff that's being hidden on the balance sheets of the big banks. So what the Fed's really trying to do is bail out the big banks before this all explodes again and everybody finds out the financial system has no clothes.
SMITH: Right. That's correct. But I also actually think that the Fed does believe to a degree the story they tell about quantitative easing, which I find, you know, that it will somehow stimulate the economy [inaudible]
JAY: But how? 'Cause the banks are already sitting on $1 trillion they won't loan. So now they'll have $2 trillion to sit on [inaudible]
SMITH: Well, they believe that—no, I think that I—I tell you, I have to say that I think they believe it for different reasons, and everybody they talk to is in Washington and in New York, and those two economies are doing relatively well, so that they are getting feedback—they don't go out in the real economy. They're getting too much feedback from the wrong people.
JAY: Or is it just about how do we create another bubble and to hell with what's going on on Main Street?
SMITH: Well, it could very well be that also. But the second thing is, when you're talking about sort of the hanging on, the sort of the image that I use is what happened is we had the equivalent of a 500 pound man (which is our bloated financial sector) that's already diabetic that then had a heart attack and went to an intensive care. And normally what you would take with the 500 pound diabetic man who had a heart attack is give him the quadruple bypass, you know, get him to lose weight, and as soon as he's lost enough weight that he could exercise, go out and exercise. What we've instead done is put him in the hospital, he's getting meds, and he's ordering in from his gourmet restaurant, and his friends are bringing him bonbons when they visit, and so now he's actually gained 50 pounds.
JAY: So he's getting burgers and cherry pie intravenously.
SMITH: Right. Right. That's correct. So, you know, we haven't solved anything, and if anything the problem's gotten worse, because the big banks that were too big to fail actually got more concentrated, because players like, you know, Bear Stearns were merged into the big banks, so the big banks got bigger.
JAY: So is part of this that if they don't hide just how fragile and weak the banking system really still is, the market's going to crash, there is no chance of getting their bubble going, and back to panic city?
SMITH: Right. Exactly. And the other thing that the regulators are doing, and the Fed is included, is something they call (again to use another technical term) regulatory forbearance. The banks are still carrying a lot of bad assets. You know, for example, they're carrying a lot of second mortgages. And with housing down 25 to 45 percent, if you foreclose on the house, all that money is going to go to a first mortgage. There's going to be nothing left for the second mortgages. They really should be written down quite a lot. And yet the banks, the four biggest banks, which are the ones that are most at risk, are still carrying them on their books at values of hundreds of billions of dollars, just writing down the second mortgages alone, which show these banks to be very weak. But they're not being required to do that.
JAY: So if you understand this dynamic, I'm saying, and I'm sure people on both sides of the Fed and Goldmans and all the—if you're on the inside of Wall Street, you know all of this. So what you're doing is creating the bubble, because you know when to get out.
SMITH: Exactly.
JAY: You'll get out, the bubble will burst, and there'll be another whack of people losing their pension funds and whatever.
SMITH: Except the funny bit is that they're all telling themselves this. I mean, I even heard some of my investor friends were saying that they had—were basically—everybody, at least the investor types, and you presume the Wall Street types are thinking this way also, that the Fed's creating a bubble, we're going to ride the bubble, everybody's all in. And the problem is this was the same mentality people had in early 2007. You could tell it was going to end badly, and everybody thought that, oh, we'll just ride it and we'll be able to get out on time, we'll be able to save our hides. Even the professionals couldn't. That's why we had a crisis, that what happens in a crisis is suddenly the number of trades and the volume of trades you can do collapses and they can't exit. They think they can exit in time, and the reality is the exit shrinks and only a very few people get through.
JAY: They're going to get their bonuses, and too-big-to-fail is still too big to fail, so it doesn't matter what the finance reform legislation was. We know it didn't solve too-big-to-fail and they'll come back again. So why not? What's to lose, except the rest of the society has a lot to lose?
SMITH: Well, the one thing that might happen this time if we have a crash sooner rather than later is people [are] already profoundly angry with the banks. And if we have a crisis of some type in, I would say, the next 6 to 18 months, there's going to have to be a pound of flesh for another round of bailouts. It's not going to be acceptable for there to be another round of bailouts without at least the management of major firms being fired. I mean, there will have to be some price to pay.
JAY: And that will rip the Republican Party apart, because how do the Tea Party sign on to another bailout? And we know old-line Republicans will be there. I mean, Bush always was.
SMITH: Right. Right.
JAY: Okay. Segment two, we'll come back, and we're going to talk about what should be done, because the way it's going don't look good.
SMITH: Right.
JAY: Thanks for joining us on The Real News Network. And come back for part two.
End of Transcript