Milken Institute on Energy: Give More Money to Investors

Executive Summary

• The Fake Think Tank Has All the Answers
• Listening to Michael Milken

The Fake Think Tank Has All the Answers

We have become interested in the think tank funded by convicted felon Michael Milken, and decided to read his research paper titled Financial Innovations for Achieving Energy Independence. It combines vested interests from energy consulting and investment funds that have wares they would like to market.

https://www.milkeninstitute.org/pdf/SAVEFnclInnovsLab.pdf

Here is what we found.

The paper starts out with several quotes that are interesting.

“At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need.” Richard M. Nixon, State of the Union, January 30, 1974

“Worldwide sales of clean energy (biofuels, fuel cells, solar power, and wind) totaled just $39.9 billion in 2005, while revenues of the world’s six largest private oil companies (Exxon, Royal Dutch Shell, BP, Chevron, and ConocoPhilips) exceeded $1.6 trillion.”3

These two facts tell us a lot about how little progress is being made. While these are interesting facts, Milken begins going in a highly doctrinal and self-serving direction in the paper. Milken’s solutions all have to do with using the government to benefit investors. Rather than taxing oil and using the proceeds for alternative fuel development, Milken would do the following.

A federal tax that sets a floor price for oil. Participants believe incentives are needed to protect investors against the prospect of falling oil prices. A federal oil tax that would only kick in if oil prices fell to a level that undercut the viability of alternative fuels is one way to wring out volatility and lessen investment risk. If the tax takes effect when oil falls below, say, $38–$40 a barrel, the tax would play the same role for investors that bank deposit insurance plays for savers: it would provide a measure of security.

Thus according to Milken, investors should not have to operate in a free market, but rather have their risks socialized. He then draws the parallels with deposit insurance. However, there is a massive difference; deposit insurance protects account holders and helps maintain a stable banking system. Even more hypocritical is the fact that many conservative think tanks, like Milken, are against deposit insurance as it causes banks to take on more risk. Thus, while the ultra-wealthy are against deposit insurance for banking, they use it as an example for speculator insurance. Oil investment “insurance” would protect speculators, and would create an incentive for further market manipulation. Since oil companies themselves are major speculators, they would get even more money from the government.

Milken then misunderstands oil reserved by making the following comment.

“Since 1995, the world has consumed approximately 300 billion barrels of oil, while about 300 billion barrels have been put into proven reserves.1”

There is no delicate balance, countries are faking the additions to reserves in order to be able to pump more because OPEC allocations are based upon proven reserves, thus the larger your proven reserves, the larger your ability to pump. All reserves figures are self-reported by countries. The fact that Milken does not know this, or is misrepresenting this on purpose is a concern.

Milken then makes the common statement about how more of our oil is increasingly coming from “unstable political” regions. The problem with this analysis is it leaves out our role in destabilizing these very regions. Nigeria has become more unstable because of Shell. Obviously we don’t need to discuss Iraq. We destabilize countries when we give a huge amount of money to the ruling oligarchy and turn our backs on the people of the country. We directly provide Saudi Arabia’s security – against its own people. When people try to undermine the power of the ruling oil oligarchy in countries we call this “terrorism.”

Milken becomes “optimistic” when discussing how to move toward energy independence when noting.

“SAVE (SAVE is Milken’s corrupt energy group that participated in the study) members concluded early on that there is reason for optimism: the primary barrier to achieving energy independence is not technology. The obstacles are financial and policy-oriented, and therefore surmountable.”

However, having just misinterpreted the reasons for the volatility in oil producing countries (our involvement) it is not clear that these issues are surmountable. For instance, technology barriers did not have anything to do with the bailout of corrupt banks with TARP funds and tax credits and the Fed’s secret $1.2 trillion payments to banks, it was political. Yet it still happened. The constraints of politics and corrupt finance are as real as those of technology. Milken then makes another ignorant statement when the paper states.

“Viable fuel alternatives are available. In 1908, for example, Henry Ford produced a Model T that could run on either gasoline or ethanol. Today, most of Brazil’s automobiles are “flex-fuel,” capable of using gasoline, ethanol, or propane.”

What Milken fails to mention is whether ethanol is sustainable, even when sugar cane or sugar beets are used. The answer is they are not, not when the environmental and energy costs of producing them with the agricultural infrastructure is included. This statement seems to indicate that Milken has placed no scientists on the panel to write this paper as the authors cannot understand or compare the sustainability of different alternatives. This is the problem when you select exclusively people of finance or economic backgrounds, who also don’t check facts, to write your paper. Milken goes on to make a drastic error in the understanding of energy alternatives in the next paragraph.

“A recent report, The Future of Coal: Options for a Carbon-Constrained World, from the Massachusetts Institute of Technology, calls for a $5 billion program to demonstrate clean coal technology.7 If the technology proves feasible, clean coal plants could cost anywhere from $2 billion to $10 billion each. The U.S. goal of energy independence would require a large number of such plants—estimates range from fifty to more than a hundred—and a commensurate level of funding, from $100 billion to $1 trillion. On any reasonable scale, the key issue for energy independence is financing.”

By this time it is known that Clean Coal is nothing more than a fantasy of the coal industry to help refurbish their image. The Department of Energy looked into creating a clean coal plant and had to drop the project as the costs spiraled out of control. There is not one clean coal plant in operation anywhere in the world, and the costs are such that there never will be. Thus Milken goes on to talk about the importance of funding for a technology that can never be. This would be like saying that the “key issue for time travel is financing.” The first question to answer is whether time travel is possible. If it’s impossible, then financing is not important.” Clean Coal was not developed by objective scientists, it was and is now simply a chimera created by the coal industry and the more it is repeated, the more damage it does to science.

After several completely idiotic statements, Milken actually goes on to make a good one, or at least to find a good quotation.

“A recent report, The Future of Coal: Options for a Carbon-Constrained World, from the Massachusetts Institute of Technology, calls for a $5 billion program to demonstrate clean coal technology.7 If the technology proves feasible, clean coal plants could cost anywhere from $2 billion to $10 billion each. The U.S. goal of energy independence would require a large number of such plants—estimates range from fifty to more than a hundred—and a commensurate level of funding, from $100 billion to $1 trillion. On any reasonable scale, the key issue for energy independence is financing.”

Milken then goes on to make another serious error in the following paragraph.

“Hydrogen, a frequently proposed alternative, is cleaner but much more costly.”

This is quite embarrassing for Milken. Even those only somewhat familiar with the energy debate know that hydrogen is an energy carrier, but not an energy source. There are no known terrestrial sources of hydrogen, and creating hydrogen through electrolysis takes more energy than it generates. Furthermore, hydrogen is not even a good energy carrier due to its poor density, and difficulty in storage not to mention its dangerously explosive properties. We could explain this to a 15 year old, so why can’t Milken get it? Probably because understanding science is a lot more difficult that making fake financial instruments and trading bonds.

Milken then goes on to discuss ethanol some more, with zero understanding of the actual limitations of any type of agricultural energy source, before moving on to a fantasy based discussion of clean liquefied coal, another proposal by coal lobbying firms.

Conclusion

Milken’s paper on alternative energy shows very significant ignorance of the science of alternative energy. The authors are not experts in the field and seem to not know what they are writing about. The paper is not really a set of solutions as much as a position paper to create programs that will benefit wealthy investors, that are part of the SAVE group. This is not surprising as Milken himself is a wealthy investor. The paper finishes off by proposing a number of schemes that would no doubt enrich wealthy investors and Wall Street with taxpayer money and lead to very little development of alternative energy, which is Milken’s end goal from the beginning. Given the paper’s ignorance of the viability of any of the alternative energy sources, it’s unclear if the Milken Institute is even sufficiently versed in the topic to serve as an authority in this area. Also, their extreme bias in favor of wealthy investors and the fact their patron is completely unethical is another problem in accepting any of their recommendations. Also, the title of the paper is ludicrous. Under Milken, the innovative finance he introduced under Drexel Burhnam Lambert proved to be nothing but a scam. Financial innovation in mortgage-backed securities and credit default swaps has proven to be an even bigger scam, both of which cost US taxpayers dearly, and actually reduced US democracy. Using the term financial innovation should immediately discredit the user of the term.