Democrats and some Republicans in Congress want a cap-and-trade bill to curb emissions of greenhouse gases and fight global warming. But some senators are so averse to giving banks a role as market-makers in the carbon dioxide market that they may scuttle the entire bill, Bloomberg News reports. The wire quotes Senator Cantwell, a Democrat of Washington: "The volatility that has existed in the oil market is exactly what we don't want to happen in carbon markets...The banks contributed to that, and the banks continue to contribute to it."
Ms. Cantwell reportedly financed her 2000 Senate campaign with $9.2 million in stock in RealNetworks. As James Glassman reported, RealNetworks stock went to $8 from $92, so Ms. Cantwell knows plenty about volatility. It was okay for her to traffic in a volatile commodity and profit from it; now she wants to deprive others of the ability to do the same. The thing about markets is that sometimes they are volatile. If the government intervenes to reduce the volatility, it tends to reduce the freedom of the market and the ability of the market to discover a real price. None of this is to endorse the cap-and-trade idea (Harvard economist Greg Mankiw suggests a carbon tax offset by a cut in income or payroll taxes) or to suggest that the government financial aid to banks should come without any strings attached. But the episode does highlight the ambivalence some Democratic politicians seem to display about markets. They see their virtues, which is why they are pursuing a "cap and trade" system rather than an outright ban on certain emissions. But they recoil at certain aspects, such as volatility or the involvement of financial institutions, that go along with markets.