Profanity On: Ontario Energy

Inefficacious: not able to produce the desired effect
Example: Ontario’s Energy Supply

I received a brochure in the mail today that read in large green letters, “RECEIVE $25 FOR HELPING THE ENVIRONENT!” On top of this fantastic claim was a picture of 5 children smiling and holding flowers. Normally I would throw out mail that wasn’t personalized, but how could I refuse such an offer? This advertisement seemed to suggest that I could save the environment, make $25, AND somehow make children happier at the same time!

I opened up the brochure to find an advertisement for Peaksaver. The advertisement read something like this: We, the government, will (use tax dollars to) pay you $25 and install a free thermostat (a $300 value) in your house!! There is absolutely nothing to lose….except that once it is installed we will also take control of the temperature in your house. Sign up now!

I immediately thought of three things:
1) This is the most socialist attempt at environmental protection I have ever seen in Canada.
2) Is our government run energy supplier this desperate, and if so why?
3) If you put propaganda of children with flowers on any brochure it’s bound to get read.

Socialism:

People may think this is an exaggeration; after all, “the government is just trying to help the environment.” But make no mistake, when the government feels it has the responsibility and the ability to go in to your home and control an aspect of your life to this extent, it is an act of socialism. When a government uses propaganda and incentives in order to convince you to give up your own rights for the sake of everyone else, it is an act of socialism. In this case, they claim to be helping the “greater good” by controlling your heating; after all, the environment is important to all of us. I cannot help but be reminded of China, which claims to be helping the greater good when they block TV Shows and internet websites from public access. If the government believes it has the right to control your heating, don’t be surprised when the government takes control of your TV and decides violence could be reduced by blocking 24 and South Park.

Government run Energy:

Here is a list of separate government run energy companies and their mandate according to their website:

Ontario Power Authority: Responsible for ensuring an adequate, long term supply of electricity in Ontario.

Ontario Ministry of Energy- Top priority is ensuring that Ontario’s electrical needs are met in a sustainable manner.

Office of Energy Efficiency- Canada’s centre of excellence for energy conservation and efficiency. Mandated to strengthen and expand Canada’s commitment to energy efficiency.

Associates of Power Producers of Ontario- encourage efficient and timely investment in Ontario’s power system to ensure adequacy and reliability. Produce the optimal cost for Ontario consumers.

Ontario Energy Group- to increase energy efficiency of residential dwelling across Ontario, making homes across the province budget and eco friendlier.

Ontario Energy Board: regulates the province’s electricity and natural gas sectors in the public interest.

Ontario Power Generation- Ontario based electric generation company whose business is the generation and sale of electricity in Ontario and monitoring the safety and environmental concerns involved.

Hydro One: the distribution of electricity to customers in a safe and reliable way. We aim to deliver clean and renewable energy.

The Electrical Safety Authority- Responsible for public electrical safety in Ontario.

Independent Electricity System Operator- responsible for the day to day operations of Ontario’s electrical system

Ontario Electricity Financial Corporation- managing the debt, financial risks and liabilities of Ontario Electricity


Excessive and repetitive seem like an understatement given our taxes on electricity just doubled with the harmonized sales tax. A private company would consolidate each of these in to one efficient company. Instead we have a system that is polluted with mutiple high paid executives and enormous overlap, all being funded by the tax payer's dollar.

This is a great example of an inefficient government service that is milking our tax dollars away for nothing. Ontario has high electric taxes and low efficiency. It is estimated that within 15 years over 80% of the power plants in Ontario will need to be rebuilt as they are already over dated and inefficient. Yet, instead of a private company paying for this, the taxpayers will bear the burden.

The government argues that a state controlled energy provider can optimize efficiency because it can take advantage of economies of scale, in other words, it is less expensive for one company to build the infrastructure than it is for two, thus they can charge less. However this is the same for any product. It would be less expensive for one company to build every computer in the world, but that does not mean the governement should take control of the computer industry. Competition ensures companies operate efficiently or they go out of business. Instead of milking our citizen’s wealth away, the energy sector should be made private and allowed to function as the market allows it. Imagine the incentive for a private run energy company to reduce costs or replace electricity with a better resource....a lot of profit. Now imagine the government's incentive....no risk of going out of business....no incentive to reduce costs....no incentive to save money for research. They don't care about profits because they arn't paying for any of it, we are.

Economies of Scale are applied WITHIN COMPANIES to attain a competitive advantage, by eliminating the competition itself you are not promoting efficiency or economies of scale.

F**K Government inefficiencies,

Sylvester McMonkey McBean

Profanity on: Philipp Bagus

This post is in response to Bagus' article entited: The Social Function of Credit-Default Swaps which can be read at www.mises.org/daily/4502

Parochial adj; very limited or narrow in scope or outlook
example: Philipp Bagus

Correctly, Bagus points out the self-validating nature of naked credit default swaps. In other words, they can increase distrust in banks by betting against them, forcing the banks to offer a wider spread. Where Bagus goes wrong is his conclusion that this makes CDS’s powerful corrective instruments that discipline banks.

The problem with the analysis is that it only looks at who is buying the CDS, never at who is selling. The seller is taking on the risk of default by insuring against default. Yet the companies that are doing this are not insurance companies- anyone can issue this insurance. This is not the case with most insurance. Insurance companies are regulated and are forced to hold reserves against the risk they are taking on and the quality of those reserves is monitored. In this way, people who take out insurance know what the odds are that they will collect from the insurance companies. Or, what the odds are of default.

The first problem with unregulated (and therefore unreserved) insurance such as CDS is the systemic risk that can be caused by bankruptcy of the CDS seller. AIG was a huge seller of CDS – and when they went bad the whole company went under- this means that anyone else that had investments and legitimate insurance with AIG would have lost everything – causing more bankruptcies, and so on.

The problem with naked CDS is this: If you write normal insurance on a house or a person’s life, you can only be required to pay it off once - that is a person can only die once. With naked CDS’s, a $100 million bond can be insured by anyone that bets against it. This could mean that a stupid company (which deserves to go out of business), that insures the $100 million ten times over could end up with $1 billion of debt if the bond defaults. This one stupid company can take down many many others, putting the overall economy at risk, and some would say forcing the government (taxpayer) to intervene.

The second problem, which Bagus touched on but not to its full extent, is that a naked CDS can be a problem even if they are written by an intelligent insurance company with normal reserves. A smart hedge fund can start buying CDS’s on a quality credit. They could buy $1 billion dollars even though there is only a $100 million dollar bond, and they could do this with 100 different providers. Since there is no exchange or clearing house, all of this is done with private contracts and so no one knows what is going on except the big buyer. The price will be pushed up, indicating higher risk for the seller, but there really isn’t higher risk, it’s just one buyer trying to successfully rig the market. This leads to the legitimate insurance company owning a less valuable asset (their CDS contract), and thus having to put up more reserves. If this happens enough, the insurance companies have financial difficulty, and you can have a financial crisis.

To make a proper analysis one must look at both the buyer and the seller. This is where Bagus went wrong, and this is why he comes to the wrong conclusion.

Forever pissing off PHDs,

Sylvester McMonkey McBean