Who Do You Trust?

What is it about conservatives? I'm constantly running into these weird conflicting narratives. Ideologies that seem to be in complete opposition to each other. One of the strangest is the Government vs. Private debate. It's no secret that it's accepted conservative dogma that the government is usually wrong and that it does more harm than good. Basically an overall distrust of government involvement, sometimes elevated to an almost paranoid level. Yet the same people who can't say the word 'government' without spitting, seem to have utmost trust in the conduct of the private sector.

I recently commented on a story related to the EPA and ended up in a 'conversation' with someone who seemed to believe that the EPA was following some grand "Obama Doctrine" and "Imposing their societal designs on free and prosperous people, dictating how we live, controlling our every movement in our personal life." Yet, on the other hand, "the Free markets are a wonder and transform society into a prosperous, innovative, imaginative society."  So while the government is bad and untrustworthy, trying to control our every movement, the free market is the panacea from which all good comes. At least according to more than a few conservatives.

Can they actually be completely missing the problem with this argument? Big Government is bad, yet Big Business isn't? Why is Exxon any more trustworthy than Congress? What makes General Electric more noble and honest? I think it goes back to my theory that perception is 9/10 of reality. We're bombarded by all the stupidity, the wastefulness and the corruption of our government on a continual basis. The news trumpets it and comedians mine it for laughter. But with big business, it's different. Unlike the President, the Speaker of the House or the Senate Majority Leader, most of us have no clue who's heading up Bank of America or Wells Fargo. Go up to any random person on the street and ask them their thoughts on Brian Moynihan, Jamie Dimon or Vikram Pandit and note the blank expressions.  Yet these men run the top three financial institutions in the country (B of A, JP Morgan Chase & Citi Group respectively) with combined assets approaching six and a half trillion dollars!  Functionally, these are three of the most powerful people in America, yet few even recognize their names. Add to that the fact that when a business does something wrong you rarely hear anything about it. Just about every financial firm has been fined repeatedly, even over just the last few years, for wrongdoing and outright fraud, yet they are usually able to finagle a simple fine without actually admitting any wrongdoing. This is something that boggles my mind, actually. And the fine is usually far less than what the company made by using those shady practices in the first place, thus providing no incentive to do the right thing in the future.

So naturally, we perceive business as being more upstanding, because Conan O'Brian hasn't done many jokes about Goldman Sachs latest $22 million fine. You see the joke is that they conspired to  . . . never mind, it's not really that funny actually. I understand that we like to look up at these money making machines in awe, but simply being successful doesn't make you trustworthy or moral. In fact, I've been lectured on more than one occasion by someone telling me that I shouldn't expect corporations to make moral decisions! So if they can't be expected to do the right thing for anyone but themselves, then why would you extend them such trust? The only thing Citi Group can be trusted to do, is make money. And it's that very laser focus on profit, above all else,  that should inspire extra oversight and not extra latitude.

Look, I don't have any special trust in government but contrary to the conservative narrative, government does do some things right. Scenic gems like Yosemite and the Grand Canyon are protected and remain open to any American to enjoy, without being draped in mansions and sprawling resorts. Criminal plots are stopped and their perpetrators removed from the streets by the FBI and Federal Marshals every day.  American seniors are able to get basic health insurance, rather than facing the gauntlet of private providers, because of Medicare. Rivers don't generally catch fire anymore and companies can't release known toxins into the atmosphere since the EPA was signed into being by that liberal icon Richard Nixon. We have few outbreaks of food born illness since the FDA started setting standards for food preparation, and when they do occur they are quickly tracked to the source and dealt with.

Government can be overbearing. It can be wasteful. It can be corrupt, but it also performs many services that we all take for granted. The free market also provides many invaluable services to individuals and the country at large, but it is also willing to ignore the common good and long term effects of their activities in the quest for profit. Neither is wholly good or wholly bad and neither can be trusted to operate without supervision. The Founders knew that about government and that's why they constructed the American system with interlocking checks and balances. We have to stay vigilant and do the same with big business, because they represent just as much of a danger to the nation as an overbearing federal government.

Greed Spill

There are still many questions about the BP/Transocean disaster in the Gulf but one thing is crystal clear, greed has once again trumped safety and common sense. This is yet another in a long string of examples of massively successful companies that still feel that it makes sense to save a few dollars by cutting corners. Just as we've seen in the recent financial debacle and the Upper Big Branch mine explosion, rich corporations played fast and loose with common sense because it was in their best financial interests to do so. Wall Street did it with people's financial future and the stability of the nation's economy. Massey Energy did it with the Upper Big Branch mine, costing the lives of 29 miners. And now BP and Transocean have done it with the environment of the Gulf Coast, the livelihoods of those in the fishing and tourist industries and they did it literally with the lives of 11 rig workers.

Now I'm not siding with Michael Moore to say that Capitalism should be killed, though his argument is not without its points. What I have maintained is that Capitalism will always, without careful oversight, trend towards corruption and fiscal lunacy. During the financial crisis companies seemed immune to any consideration of the inevitable result of the financial bubble. Instead of easing up and throttling back to cruising speed, knowing that the wave of profit was going to end and almost certainly end catastrophically, they slammed the throttle through the gate and flew into the wall at mach 3 screaming like nineteen year olds at a frat party. So quite clearly, we can't even rely on companies to look out for their own long term stability. It's true that this crisis came about from the unholy confluence of bad government decisions, inept or criminally negligent bureaucratic oversight, idiotic lending practices, over leveraged banks and investors willing to buy and sell anything, up to and including their own internal organs. And what do all of those factors have in common? Greed. Pure, undiluted greed. For money, power, influence or just plain bragging rights.

The Massey Energy mine explosion at the Upper Big Branch mine is another example of this triumph of cash over conscience. As investigations into the mine explosion that killed 29 continue, more and more evidence is coming to light about how Massey continually worked to avoid instituting safety procedures designed to disperse methane and coal dust just to save a little money and prevent even the slightest drop in production. A number of workers have testified that it was standard procedure when an inspector was onsite to relay the 'alert' down into the mine so they could scramble to put 'curtains' and other safety equipment into position prior to the inspectors reaching the area. A report on a number of 'crash' inspections where the inspectors immediately took control of communications and were able to reach the lower sections of the mine without any warning found numerous major violations in every single case. It's inconceivable to me that a company would show almost no concern whatsoever about the health and safety of workers in one of the most dangerous and unhealthy jobs in the world. I would think that it would be in the company's best interests to keep them safe and do everything to reduce the chance of a catastrophic event, even if only to avoid the risk of mine damage, investigations and lawsuits. But obviously I'm thinking too long term, whereas Massey is concerned with current numbers and making sure they never falter for any reason, even the safety of their workers.

The BP/Transocean disaster also seems to have greed as a major factor in the rig explosion and subsequent blowout in the Gulf of Mexico. According to some early investigation and interviews with the surviving crew of the Deepwater Horizon rig, BP pushed for and finally got the rig operators, Transocean, to go outside standard procedures for decoupling from the well head. This set the stage for methane to escape up to the surface where it ignited causing the explosion that eventually sunk the rig and caused the uncontrolled eruption of oil into the Gulf. Why did they want to alter the procedure? To speed up the operation and save money. This from a corporation that made over $6 Billion profit in the first quarter of 2010. Not $6B in earnings, $6B in pure profit. With that kind of margin, why quibble over the comparative pocket change of an extra day on-site? Greed. Sure they made $6 Billion last quarter, but why not cut some 'unnecessary' costs and go for $7B next quarter! It's this kind of warped drive to place profit above all other considerations that is unacceptable and leads to disasters such as the Deepwater Horizon fiasco, the Massey mine explosion and the financial implosion of 2008.

In fact, I submit that more often than not, major 'accidents' can be traced back to a decision somewhere along the way that placed profit above regulation and good judgement. Use a cheaper material than what was planned for, skip a final safety check or fail to do a careful stress test on a piece of equipment. All these things happen because those involved want to save money and everyone assumes that an accident will never happen to them. Safety checks aren't skipped because someone is bored, they are skipped because the operation is behind schedule and if they don't catch up it will cost someone money. Or they want to save someone money by finishing early. Or they get a bonus if they finish faster. See the common denominator here? I bet the vast majority of corporate and engineering disasters in America's history can be distilled down to one or more choices of profit over sanity. Just look at the BP/Transocean emergency plan for this current disaster. From what I can tell, the sum total of emergency planning was the blowout preventer on the ocean floor and if that didn't work, as it didn't, 3 months or so to drill a relief well. That's it! Everything else they are trying are either plans that have never actually worked in the past and whatever ideas they can scrape together as a result of post disaster brain storming sessions.

In fact Transocean, who owned the rig itself, more than almost anyone else, knew with some certainty what the worst case scenario was, long before this well was ever approved for drilling. Because 30 years ago a rig owned by a company called Sedco, caught fire and burned in the Gulf of Mexico in 1979, unleashing thousands of barrels of oil into the Gulf every day. Sedco is now better known as Transocean and proclaims on their web site, in a sad bit of irony "we are never out of our depth." I kid you not. Watching the archive footage from that disaster is infuriatingly similar to the current spill, right down to the failed blowout preventer. Even the technology used to attempt to stop the spill are all but identical. So while the technology to drill in deeper and deeper water has advanced at a quick pace, the tech to cap a blowout in deep water hasn't advanced in any meaningful way in over 30 years. If this doesn't upset you then you aren't paying attention. Why did they have nothing else prepared? This is the question I keep asking myself. It wouldn't take a petroleum savant to predict that it would happen again and likely at a much greater depth. So why? Because they didn't see how planning and training for this sort of worst case situation would have any positive affect on their profits. It costs money to design and test procedures and equipment to cap a blown out well head over a mile under water and financially the money spent has no positive bearing on the bottom line. From a purely accounting standpoint it would be money spent without any benefit. Unless there is a disaster, of course. So why waste money on equipment and procedures you never expect to use when you could spend that money on developing the technology to drill faster at deeper depths? It's like building a car to win the Indianapolis 500 and only as you cross the finish line do you get around to discussing how to actually bring the car to a stop.

This is why 'self regulation' or 'letting the free market decide' are not simply empty phrases, they are the harbingers of disaster. Anyone who believes that a for-profit industry can be trusted to self regulate is either a part of the industry in question, naive in the extreme or, I'm sorry to say, a complete idiot. Most, though certainly not all, corporations become more and more narcissistic the larger they become. At some point they reach a size, like BP or Massey, where the lives of their employees become vague and abstract concepts that only enter into corporate calculations as a column in a spreadsheet titled 'available resources'. A simple, calculated choice of whether to complete the well capping 'by the book' or save money and gamble that the odds are against an accident. Well, in this case 11 rig workers are dead and thousands of barrels of crude oil is gushing into the heart of America's aquatic bread-basket. Guess they chose wrong this time. Whoops! Of course next time they'll just weigh the odds again and are just as likely to make the same choice. As long as it's up to them. Corporations will always be selfish and amoral, especially once they go public and have to worry about quarterly earnings and the whims of the Market. I don't think 'Selfish' or 'Amoral' are traits we should encourage in our corporations and especially not in our financial institutions. But if they are going to function that way then we had better start paying attention.

That's why America, and any nation that stakes its power and stability on a capitalistic model, must have a system in place to counter corporate greed. Consider the metaphor of our highway and road system. We don't just put up a few caution signs and a weigh station here and there to check paperwork. We have traffic lights and stop signs to control the flow of traffic. We have state and local police to ensure drivers follow the rules and those who don't are fined or jailed. There are also those in the justice system whose job it is to provide oversight on the police to deal with any corruption. There are DMV regulations mandating safety devices and minimal mechanical soundness of our vehicles. There are inspections. There are traffic regulations to keep everyone moving in logical, controlled patterns and regulation on where and when you can park. Sure, there is the odd driver who bemoans the speed limit that prevents him from taking out his Porsche and screaming down the highway at 150 mph, but society has decided that public safety is more important than the whims of an adrenalin junkie. So why not apply these ideas to our corporate and financial system?

First, let's stop listening to every whimper from these sectors whenever a new regulation is proposed. Any objection from this quarter must be taken with a salt-lick sized grain of sodium since they have everything to gain from killing regulation. Second, make the regulations intelligent and fair, but difficult to circumvent. Third, ensure the penalties for breaking these regulations are severe enough, even for a company the size of BP, to 'encourage' compliance. Fines will only be effective if they are commensurate with the profits of the corporation in question so as to make noncompliance far too expensive and damaging to risk. Fourth, stop trusting corporations to actually follow the aforementioned regulations and make sure there is objective oversight in place. Fifth, there should be a series of checks and balances in place to verify that the oversight is clearly separated from the industry it regulates and that any corruption within that agency is swiftly addressed and severely punished (see point three). As part of this, regulators should be barred from crossing the lines to work for the industry they have been overseeing for five years or more. The last thing we need are regulators walking across the street to advise corporations on how to beat the oversight agency from which they just resigned or worse, giving corporations a pass on regulations to kiss up for a job. This has actually happened recently and I'm sure is not unique. Kind of defeats the purpose of oversight, don't you think?

As to the BP/Transocean disaster itself? If it was up to me, there would not be another approval for offshore drilling until or unless the company doing the drilling is able to demonstrate layers of redundant safety and emergency response procedures that are appropriate for the depth and manner of their drilling. Emphasis on 'demonstrate'. I don't care what someone scribbled on a bar napkin. I want it produced and tested at the depth it's rated to be used! I would order the shutdown of BP's other major drilling rig, Atlantis, which is currently drilling deeper and is only a hundred miles further out into the Gulf than the Deepwater Horizon. BP has already shown it cannot be trusted and does not currently have any workable plan to deal with deep water spills.  I would mandate that all operating offshore rigs would be subject to immediate and detailed safety inspections. Any violations that could bear on personnel safety or oil containment would result in a shutdown of that facility until it was resolved. No exceptions. Companies operating wells in US waters would be required, as stated earlier, to develop, test and deploy procedures and equipment appropriate to prevent or quickly stop a worst case scenario. No optimistic predictions! I'm talking what's the worst thing that could happen and what are the plans to deal with it. No plan, no production. This would have to be done within a specific time period or the well would be shut down. Liability for spills would be expanded well into the billions of dollars so that it would never again be worth the risk to bypass regulations or safety. Ideally this liability would be tied in some way to the company's profits so as to make the final number sufficiently agonizing. These penalties would be multiplied exponentially if the company was proven to have knowingly bypassed regulations.

Think I'm being too harsh? Tell that to the families of the 11 men who were killed on the Deepwater Horizon and the 29 who died at the Upper Big Branch mine. Tell that to the millions out of work all because of stupid decisions by people still racking in top dollar salaries. Tell that to the thousands of Gulf Coast residents who make their living from the fish, shrimp, oysters and other animals that will be devastated by this spill. Tell that to the tens of thousands of people along the coast from Texas to the Keys whose livelihoods depend on tourism. And please, try and explain the details of your concerns to the pelicans, osprey, tarpon, flounder, shrimp and all the other species who will die by the thousands because of the BP/Transocean disaster. I have zero sympathy for companies like BP and Transocean. They knew full well how badly things could go wrong, but they did nothing to prepare. No redundant systems to prevent the blow out. No viable emergency plans appropriate to the depth. In short, they did nothing except line their pockets, secure that the odds were in their favor. If both companies are destroyed in the process of cleaning up this disaster and trying to make reparations to the lives they have ended and shredded I will not shed one single tear. It will be an example to every other company about what happens when you sacrifice everyone else and everything else in the pursuit your wealth.

Proof of Entropy

Way back in early 2004, when I first started playing with a blog, I wrote a piece titled 'The Entropy of Capitalism'. Positing that Capitalism is constantly in a state of entropy. In other words, that without careful attention, it will naturally spiral into corruption and chaos. After the last year of financial ups and downs, I went back and re-read it. I found it just as valid now as it was then. Maybe more so. Certainly we have even more examples of how wrong our financial system can go in a short period of time.

I have always heard, from the Conservative side of the aisle, that the 'Free Market' is the way to go. That we should setup some basic, minimal guidelines and just let corporate America manage itself. After all, the Free Market will adjust. Right? Yeah, sure! I think we can finally put a fork in that particular bit of idiocy. Let's be clear. Capitalism runs on one thing, and one thing only . . . Greed. That one vice is the fuel that makes the whole thing work. Now, it's easy to say that greed is good and inspires people to work and push harder and that's true to a degree. But only to a point. Beyond that point it truly becomes one of the seven deadly sins.  And that is the problem. It can be deadly. Greed is a creature that will happily begin devouring itself and only discover the problem as it bleeds to death. And this is what our entire financial system is based on. Just look at Wall Street, everything is based on quarterly profits and growth. Quarter over quarter and year over year. Fail to keep your growth rate solid and, even if your company is stable and profitable, your stock will plummet. More, more, more. Now, now, now! Tell me how this system can be trusted? It's a gambling addict that we're told can be trusted to walk past the Bellagio with a $100 in his pocket.

Need examples? Junk bond collapse in the '80s. WorldCom. Enron, Maddoff, Mortgage crises, and this is just off the top of my non-economist head! Over and over this supposedly self-regulating financial system has attempted to devour itself. Either with monster corporations doing ridiculously stupid things or entire sectors of the economy succumbing to temporary insanity. Or in the case of Maddoff type incidents, people who are happy to destroy the lives of others, just to add to an already bulging bank account. Enough is NEVER enough. It might be different if these implosions only hurt those who took the risks, but the reverse is often true. In many cases, the masterminds behind these financial nightmares are little more than inconvenienced when things go south. These are the people who already have millions in personal wealth and iron clad, platinum parachutes. Thus allowing them to get out with only a slight tarnish on their reputations to show for the damage they've caused. Meanwhile, everyday people, i.e. the ones that do the actual work that generates corporate profits,  see life savings and jobs vanish almost overnight.

We would all like to think that the government might be of some use in reigning this in, but it's also part of the problem. Money has been corrupting politics more with each election. Campaigns that once cost candidates hundreds of thousands or maybe a million dollars now require tens of millions just to be in the running. Where does all this money come from? It certainly isn't from individuals, or at least not the majority of it. It's coming from corporate America. Individual companies and entire industries are dumping obscene amounts of money into the coffers of political candidates. Explain to me how this cannot provide a corrosive and corrupting influence on local and federal governments? How can a candidate not feel beholden to a corporate lobby that dumped massive amounts of money into their 'war chest'? It sure wasn't donated out of generosity. They expect 'their' candidate to support and protect them. Let them slide when they are under scrutiny and push through bills that benefit them. Now you might say that this is no different than any individual might want. Theoretically this is true. But how many families can inject a million dollars or more into a campaign and support dozens of highly paid, full time lobbyists? Do you note the imbalance?

The problem is that these corporations hold ridiculous amounts of sway on our political system. Totally swamping any grass-roots citizen movement. One of these groups might demonstrate and inspire letter writing campaigns to clean up pollution in a river, but how much chance do they stand against a huge chemical company who's spent decades cultivating close relationships with dozens or more members of Congress? Exactly. Experts can smile condescendingly and explain that Capitalism is a financial system and not a political one. But the truth is that this distinction is becoming more blurred every year. And any argument that a company represents thousands or tens of thousands of workers is, ridiculous. A person's job is not their entire world view. For example, do you really think every service member supports the war in Iraq? Simply working for a company doesn't mean you support the policies of the Board of Directors. The reality is that a corporation's millions are really only put into play to represent the top executives and perhaps the major shareholders. Essentially an Oligarchy. A relatively small group of elites controlling the revenue output of a multi billion dollar corporation. Not exactly what I'd call Democracy in action.

In the late 19th century, Lord Acton gave us one of those truisms that are as unyielding as gravity itself. "Power tends to corrupt, and absolute power corrupts absolutely." And in America, money is power. In this country, enough money can fix or cover up almost any problem. And enough money can turn pretty much any head. We see it over and over in the news. And we all know that what we see is only the tip of the iceberg. It's only when they are caught that we even know about it and you and I both know that only a fraction are actually being caught.

As the current healthcare reform debate rages, it's surprising to no one that many politicians who are fighting hardest to stop reform are the ones who've gotten huge financial injections from the Health Insurance Industry. I'm not claiming that anyone who got a check from Etna is an insurance company drone, but how can you trust anything they say or do when you know they took a huge donation? Maybe they are completely ethical and just standing up for their core beliefs, but the seeds of distrust have been sown and their motivations will now always be in question.

Today, top executives in the major financial corporations make seven figure salaries with bonuses that sometimes exceed their entire yearly income! These are the people who made and approved the decisions that led to the most recent, global financial crisis. These, supposedly, intelligent financial minds managed to do something criminally stupid and cost the world economies dearly. But did it hurt them? A few, maybe. But the vast majority can go on about their days, just as they did a year ago. All the risks they take are with someone else's money. If they do well, they get bonuses that dwarf the LIFE EARNINGS of the vast majority of Americans. If they screw up, even as massively as they did this time, the worst most will face is that they might not get their bonus this year. They'll just have to get by on their paltry million dollar salary. Where is the motivation to properly weigh risks? Why wouldn't they take huge gambles, when they know they have nothing to lose? Sure, some poor schmucks who agreed to loans they should never have been offered in the first place will lose their home and declare bankruptcy. So? Not someone that lives in his neighborhood! Nobody he knows!

This is not a system that can police itself, much less be trusted as the bedrock of our nation. In fact, I hesitate to trust any of these clowns with my lunch money! Many conservatives would like you to believe that the free market will always self-stabilize. And in a vastly macro view, maybe there is some truth to it. But from that same vantage, families and individuals are just buried in a pile of numbers. There's nothing on the balance sheet to show how lost homes and life savings destroy the lives of those who've worked hard for what they have. These are the kind of people conservatives like to call the 'Real America'. But every little 'correction' of the vaunted, unregulated, free market rings out with the sound of thousands and sometimes millions of broken lives and families. And once again, these same conservatives can step down from the lectern and go home to their secure lives and happy families. Upper middle-class, and in many cases affluent, families with comprehensive health insurance and no mortgage worries. I suspect this might alter one's perspective on life's priorities. Just a little bit.

So what am I saying? Am I calling for the end to Capitalism and a headlong dive into Socialism? (Real Socialism this time, as opposed to the phantom kind that so many uninformed Americans are whining about currently.) Of course not! For better or worse there are too many pluses to just discard it, even if that were possible. But Conservatives in particular and everyone in general need to wake up to the reality of our financial system. Capitalism is like riding a tiger. As long as we stay in the saddle and keep our wits about us, it's a beautiful thing! But if we let our attention wander, even in the slightest that lovely creature will eagerly devour us whole. It's time to stop looking at Wall Street through greenback glasses. I know how exciting it is to gather up the money as it rushes into the system, but sometimes that's an indication that the boat is sinking. The financial system and it's Las Vegas swagger needs to be bounded by checks and balances. We need a tight, intelligent framework of laws and regulations to childproof our nation's financial system. Because, make no mistake, in many ways these companies and individuals cannot be trusted unsupervised anymore than a two year old can be trusted with a match. Just like a child, these supposedly smart adults will become so mesmerized by all the shiny coins that they will completely ignore that the house is on fire.