From: James Rogers (jamesr@best.com)
Date: Thu Jun 07 2001 - 19:01:24 MDT
At 04:20 PM 6/7/2001 -0700, Anne Marie Tobias wrote:
>Some of these things were arguably evil or self serving, the things that
>people did to promote their vision as well as line their pockets were
>both grand and horrific. What Mulholland and the water moguls of the
>Southern California region did to surrounding counties amounts to little
>more than piracy and land war (if this is at all of interest... a fascinating
>book on the shame of our water past and the imminent disaster that is
>coming can be found in Cadillac Deserts... a fascinating and incredibly
>well documented look at the past, present, and future state of water in
>the southwest.)
It is no secret that resource futures and market-making companies like
Enron are on a buying spree with respect water rights in the U.S.,
particularly in places such as the American Southwest. In another decade
or two, California will be in the same place with respect to water as they
are with electricity now unless they get with the program (highly
unlikely). And the water shortage is far more serious.
In fact, California already uses far more water from multi-state sources
(such as the Colorado river) than it is legally entitled to; the
surrounding states simply let California use their water because they don't
currently use it themselves. States such as Arizona and Nevada are already
in the process of forcibly cutting off California from using their
rightfully owned water supplies as demand grows in those states, so
California is facing an increasinly dire shortfall. It is expected that in
a couple decades, California will be in the red (with respect to water) on
the order of 2.5 million acre-feet. Considering that the watersheds for
immediately surrounding states (themselves with populations growing faster
than California's) are only a few million acre-feet a piece in their
entirety, you can see the profit potential in owning those resources.
I don't think many people understand and appreciate what companies like
Enron actually do as a business. Enron is in many different commodity
businesses and enters new ones all the time -- petroleum and energy is just
one business unit. Companies like Enron are in the business of creating
efficient resource markets and investing in long-term resource
futures. They both create markets to increase the liquidity of resources,
and at the same time invest heavily in acquiring resources that they expect
to be relatively scarce in the future, allowing them to have both a
portfolio of valuable assets in the future *and* an efficient way to
buy-sell-trade them.
Traditionally, the market for many resources like water and energy have
been relatively inefficient, with government injecting a good portion of
the inefficiency into the system. Companies like Enron (Enron is the truly
notable one that I know of) accumulate resources until they have enough
influence to force more efficient markets to be created. Since free
markets favor efficiency, grotesquely inefficient players (such as
California) get burned. In the end, most people in most States are better
off with the freer market and companies like Enron pocket a small quantity
of change facilitating the liquidity of these markets.
What is vaguely entertaining about this, is that the players in these
markets are governments for the most part (such as the State of
California). Therefore, the winners and losers in the game are
governments, providing an interesting way of comparing the relative
efficiencies of a government when it is forced to compete with other
governments on a level playing field. The market-makers are neutral
parties, as their reputation in the market-making business depends on the
perception of them being apolitical facilitators. Naturally, this
irritates those few governments that are unprepared for this, but since
most people win in this game, things continue to move forward. The
governments complaining about this are the exception rather than the rule;
most states have profited from it one way or another.
Cheers,
-James Rogers
jamesr@best.com
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