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Question/Comment: There are two issues I’d like to see you tackle that I have not seen anyone in the media deal with. The first has to do with the sensibility of ethanol as a renewable fuel source. My understanding is that it takes .75 gallons of fuel to make one gallon of ethanol. If this is true, why is this fuel source so widely acclaimed as a great idea? Is it related to the power of the agricultural interests in our country who benefit from current policy? The second question I have relates to the subprime mortgage crisis. It would be great if you could explain how so many brilliant financial experts could have been so wrong about properly valuing the related securities. It’s easy to understand how one or two institutions could have taken an unwise gamble, or underestimated risks, but how did so many get it wrong?
Paul Solman: We’ve actually done stories that touch on both of these questions. Two that concern ethanol are here and here.
The most relevant stretch of narration is from the first of these two pieces. And I quote (myself):
“Ethanol’s environmental selling point is that it’s carbon-neutral. The modest amount of CO-2 it gives off when burned is reabsorbed by the crops used to make more of it. Critics like the Wall Street Journal editorial page argue that, without government subsidies, biofuels would cost too much; that they use too much land and water for irrigation; use more energy from fossil fuels to grow and harvest the corn or soy than it takes to extract oil from the ground; and that they have emissions of their own.
“So how much of our energy needs will they ever supply? Bio-boosters counter that the industry’s in its infancy and is becoming more and more efficient; that biofuel technology is clearly cleaner; that much of our transportation needs could ultimately be provided by harvesting just the millions of acres the government’s already paying farmers to set aside and not farm on. Moreover, soy and corn aren’t the only forms of ethanol.”
I’d stick with that.
As to the subprime situation, here is an explainer we did.
Answering your question, though, I’d say it’s a simple question of incentives: it was in pretty much everyone’s interest to keep the mortgage game going. As long as prices kept going up and interest rates kept going down, the dangers seemed minimal.
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