Collateralised emissions obligations
Myths and legends of the market
The JC’s guide to the foundational mythology of the markets.™
Collateralised emissions obligations, (also known as “CEmOs”) were an apocryphal structured product type consisting of a tranched, securitised, leveraged exposure to carbon credits that did not in fact exist but, had it existed, surely would have precipitated a global financial crisis, as carbon traders, hopped-up on absurd amounts of synthetic alpha blew up not just the financial markets but the entire planetary ecosystem with their leveraged bets on the squirrely commitments of G20 nations to act on climate change.
“A five-times leveraged derivative of hot air!” traders would chortle, selling these things out to the most vulnerable and credulous people in society: minimum-wage hospitality workers, the elderly, the infirm, the illiterate and regional German landesbanks.
- In the heady days of 2007 the JC even had this idea, ran down to the commodities trading floor to share what he thought was a tremendous joke with the structured products team. The lead structurer shook his head morosely and said, “Won’t work. We have tried and we can’t get the accounting treatment we need.”