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The Fake Factory That Pumped Out Real Money

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Re: The Fake Factory That Pumped Out Real Money

#51

Post by arjie »

tamana wrote: post #48
arjie wrote: post #44

Earlier quoted context omitted.

The numbers were valuable only so long as the fuel existed. As soon as it didn't, they're no longer valuable. Each references fuel. If the fuel it references doesn't exist, then the RIN is fraudulent. It's not an optimization. It's just plain fraud. And having people buy actual fuel doesn't solve anything. The fuel could be standard diesel bought at the pump that people are claiming is biodiesel.

That's Jacquesm's point. Fraud is optimizing for metrics without regard for what the metrics correlate to.

But that's true for anything. Counterfeiting is optimizing for obtaining paper instead of the actual units of currency.

The verification process has to be completed and has equivalent cost either way.

Re: The Fake Factory That Pumped Out Real Money

#52

Post by rayiner »

Alex3917 wrote: post #49
tamana wrote: post #42

Earlier quoted context omitted.

Cap and trade doesn't work the way you say. It isn't an auction. See the article.

> Cap and trade doesn't work the way you say. It isn't an auction. See the article. The initial credits can be allocated either through an auction, by giving them away to existing polluters, or through some combination. But after the initial allocation, credits are traded on the market. That's the 'trade' part in cap and trade.

And Coase theorem says it doesn't matter who gets the credits--they'll eventually find their way to the most efficient allocation.

Re: The Fake Factory That Pumped Out Real Money

#53

Post by ThrustVectoring »

Alex3917 wrote: post #50
fsargent wrote: post #18

Earlier quoted context omitted.

Cap and Trade and a Carbon Tax are equivalent in outcome. Cap and trade would impose fees on everyone regardless of how much it costs them to lower emissions also. The problem with Cap and Trade is that it targets the large scale emitters rather than the item desired to be limited. Imagine that you had five major producers putting out 30% of airborne carbon, and 50,000 minor producers putting out 70%. The cost of adm…

> An optimal tax system taxes things and behaviors we don't want Except for that the goal isn't to punish polluters, it's to get carbon to a level that won't result in the end of human civilization. By moralizing the issue you're just making it more likely that we won't get there.

Of course the goal isn't to punish polluters. It's to convince them to pollute less. This is why tax things and behaviors we don't want - to make it more expensive, so that there's less of it.

Re: The Fake Factory That Pumped Out Real Money

#54

Post by rayiner »

jacquesm wrote: post #36
pmorici wrote: post #19

Earlier quoted context omitted.

"The interesting bit here is that is actually quite hard to figure out why what they did was illegal" I wouldn't go that far. Each RIN needs to correspond to some physical bio-fuel. They were generating RINS but not manufacturing the corresponding fuel. Seems like straight forward fraud. Now had they been actually making the fuel but then dumping it in the trash and just selling the RIN I agree it would be harder to…

You can't exactly affix a number to a specific gallon of bio-fuel. That's where the whole scheme goes off the rails, to create unique ids that only exist in spreadsheets with no 1-1 link to some quantity of product. It's a liquid, not a box of stuff.

The RIN scheme makes sense. It allows a 10-percent industry wide requirement without requiring every company to mix 10% in its gas.

Re: The Fake Factory That Pumped Out Real Money

#55

Post by JumpCrisscross »

evan_ wrote: post #41
jacquesm wrote: post #36

Earlier quoted context omitted.

You can't exactly affix a number to a specific gallon of bio-fuel. That's where the whole scheme goes off the rails, to create unique ids that only exist in spreadsheets with no 1-1 link to some quantity of product. It's a liquid, not a box of stuff.

Exactly, it's fungible, so you don't need to track specific gallons. The point isn't to track the specific molecules that represent one specific gallon, the point is to just track that a gallon was made and sold. Nothing was made, nothing was sold, but he fraudulently tracked a creation and sale by creating the RIN.

How is this so difficult to imagine being games?

I "sell" you 10,000 barrels of fuel. Then I give you back 99% of your money. Rinse and repeat, you've generated lots of RINs with little capacity for anyone to catch you downstream. Contrast this with a carbon tax, where in order to legally generate revenue one must pay the tax.

Re: The Fake Factory That Pumped Out Real Money

#56

Post by skybrian »

jacquesm wrote: post #33
skybrian wrote: post #28

Earlier quoted context omitted.

This is like saying banks should ship gold bars to each other, or maybe we should give up on money and use barter. (Money is an abstraction, after all.) Abstraction is just how finance works. Yes, there is a risk of fraud, particularly in newer abstractions, but that's why we need auditing and enforcement.

And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved. You're essentially betting the farm on the honesty of corporations controlled by people who now have a direct incentive to cheat. That's putting an awful lot of faith in humanity right where it has the biggest chance of failing (at the CEO level). Note how in the article the people working there were saying they were…

Okay, but the system isn't going to be abandoned based on one case of fraud. It's gotta be a lot more widespread than that.

It's similar to how we don't see stores abandoning credit cards despite the impressive amount of fraud we see reported on Krebs. Instead the holes get fixed (eventually, with lots of foot-dragging).

The article reports an interesting story but it doesn't seem big enough to have that kind of impact.

Re: The Fake Factory That Pumped Out Real Money

#57

Post by SilasX »

Alex3917 wrote: post #8
Pxtl wrote: post #3

Earlier quoted context omitted.

Yes, that's why most economists I've read seem to agree that carbon tax is better than co2 credit cap-and-trade systems - simpler and harder to game, flawed only because it includes the word "tax" which is unpalatable to the public.

A tax is actually vastly more complicated and easier to game. Remember, the goal is to cap emissions, not to raise money. When you start with a cap and work backwards towards the clearing price, you are guaranteed to be meet that cap. But when you start by setting a price, there is zero guarantee that you're going to meet your emissions target. Also, the point of cap and trade is that it lets societies meet their emi…

It's eminently reasonable to have a different goal: prevent the activities whose environmental cost (via CO2) is greater than its economic benefit. In that case, the tax is sufficient to achieve that goal because it adds the cost in directly.

Then, for every case where the economic benefit is small relative to such a cost, people will stop doing it. And even if they don't, the government now has collected an amount of money equal to the environmental costs and can work on mitigating them with it! [1]

(That goal is, incidentally, the point of Pigovian taxes -- or at least, it should be, rather than "to give me cover for restricting something I disliked for other reasons", which is how they often get used.)

[1] If you want to go the route of saying that the costs are unqiantifiable ... don't. That way lies insanity (and arbitrary policy).

Re: The Fake Factory That Pumped Out Real Money

#58

Post by Dylan16807 »

jacquesm wrote: post #7
dkokelley wrote: post #5

Earlier quoted context omitted.

> that is actually quite hard to figure out why what they did was illegal How so? They produced fraudulent RINs and sold them, knowing they were not attached to actual biofuels. It's only a couple of steps removed from printing fake currency. Did I miss something in how Green Diesel justified their actions?

Well, given that the buyers bought just the numbers and not did not go to the authorities immediately it would seem that everybody in the deal was happy except for the EPA. If you make it so that a number is assigned to something liquid that is as fungible as can be then you really can't claim surprise if someone then decides to short-circuit the whole thing and bypass the manufacturing step. Think of it as an optimi…

RIDs and giant tanks of fuel are roughly equal in fungibility. You can even make RIDs into a liquid if you inscribe them on ping pong balls.

Let's imagine a slightly different scenario. Oil companies are forced to directly buy biodiesel, and biodiesel is so bad that they don't even bother adding it to their fuel. Someone could sell them empty tanks and then they wouldn't have to figure out how to dispose of unwanted biodiesel. Think of it as an optimization.

So in that scenario, there are no credits, there is no broken 1-1 link between numbers and gallons. There's just fake-production fraud. The problem there is fake-production fraud, and the problem in real life is fake-production fraud. Not the RIDs.

Re: The Fake Factory That Pumped Out Real Money

#59

Post by Dylan16807 »

jacquesm wrote: post #33
skybrian wrote: post #28

Earlier quoted context omitted.

This is like saying banks should ship gold bars to each other, or maybe we should give up on money and use barter. (Money is an abstraction, after all.) Abstraction is just how finance works. Yes, there is a risk of fraud, particularly in newer abstractions, but that's why we need auditing and enforcement.

And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved. You're essentially betting the farm on the honesty of corporations controlled by people who now have a direct incentive to cheat. That's putting an awful lot of faith in humanity right where it has the biggest chance of failing (at the CEO level). Note how in the article the people working there were saying they were…

> And without sufficient auditing and enforcement you'll get scams and your goals will not be achieved.

Auditing and enforcement are critical. Shipping around physical gallons does not get rid of that need. Physical gallons could just as easily be water if nobody checks. I don't see why you blame the abstraction.

Re: The Fake Factory That Pumped Out Real Money

#60

Post by winstonewert »

fsargent wrote: post #18
Alex3917 wrote: post #8

Earlier quoted context omitted.

A tax is actually vastly more complicated and easier to game. Remember, the goal is to cap emissions, not to raise money. When you start with a cap and work backwards towards the clearing price, you are guaranteed to be meet that cap. But when you start by setting a price, there is zero guarantee that you're going to meet your emissions target. Also, the point of cap and trade is that it lets societies meet their emi…

Cap and Trade and a Carbon Tax are equivalent in outcome. Cap and trade would impose fees on everyone regardless of how much it costs them to lower emissions also. The problem with Cap and Trade is that it targets the large scale emitters rather than the item desired to be limited. Imagine that you had five major producers putting out 30% of airborne carbon, and 50,000 minor producers putting out 70%. The cost of adm…

"The cost of administering a cap and trade system to the minor producers would be incredibly expensive - the legislation would instead focus on gouging the five major producers"

Why is that different from the tax approach? Wouldn't taxing the 50,000 minor producers appropriate to their levels of pollution be equally as expensive?

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