Third World America (16 page)

It has now become even easier to auction off our democracy to the highest bidder.

Corporate America is a lot like Tom Cruise’s teenage character in
Risky Business
, who convinces his parents he can look after himself while they are away. Then, as soon as they are gone, he orders up a hooker, trashes his father’s Porsche, has his family’s furniture stolen by a killer pimp, and throws an out-of-control party—turning his parents’ house into a makeshift suburban brothel.

Corporate America bribed and browbeat our political leaders, convincing them that private industries could regulate themselves. So out went effective oversight … and in came an orgy of unrestrained capitalism and risky business that made the Cruise blowout look like a get-together at Mother Teresa’s house.

The destructive—and often deadly—consequences of this capitalism without a conscience have been on full display for
years now. Just take a look at the immoral behavior of giant drug companies that have routinely sacrificed the health of the public on the altar of higher and higher profits, time and again leaving deadly drugs on the market despite the loss of innocent lives. Or the chemical industry’s long-term cover-up of the poisonous effects on unsuspecting workers and consumers of many of the eighty thousand synthetic chemicals created in the past sixty years.
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Or the way Big Tobacco has fought tooth and nail to keep marketing a product that still kills more than 440,000 Americans a year.
²¹
Or the outrageous ripping off of the American taxpayer by Halliburton and other contractors throughout the Iraq war.
²²

In 2010 there were three headline-grabbing examples of what happens when corporations get their way in Washington and our public watchdogs become little more than obedient lapdogs, unwilling to bite the corporate hand that feeds them: the explosion at the Upper Big Branch coal mine in West Virginia; the BP oil blowout in the Gulf of Mexico; and the ongoing aftershocks of the financial collapse, including the fraud charges against Goldman Sachs.

All these disparate events are linked by the same root cause: a badly broken regulatory system.

The loss of life in the Upper Big Branch mine and on the Deepwater Horizon oil rig happened in one horrific instant. The economic collapse has not killed people, but it has gradually destroyed the lives of millions of Americans. All three calamities occurred because elected officials who should have been enforcing a regulatory system that protects working families instead allowed the system to protect the corporations it was meant to watch over.

Most of the systemic breakdowns that led to the regulatory
failure at Upper Big Branch and on the BP rig were the same ones that led to the housing bubble, credit-default swaps, toxic derivatives—and, by extension, the bank bailout, long-term unemployment, and the rapid decline of America’s middle class.

Days after the Upper Big Branch disaster, the
New York Times
described the Mine Safety and Health Administration (MSHA), the regulatory agency that so atrociously failed the Upper Big Branch miners, this way: it is “fundamentally weak in several areas”; “the fines it levies are relatively small, and many go uncollected for years”; “it lacks subpoena power, a basic investigatory tool”; “its investigators are not technically law enforcement officers”; “its criminal sanctions are weak”; “fines remain so low that they are mere rounding errors on the bottom lines” of the companies being regulated; and it shows a “reluctance to flex all of its powers.”
²³

In an eerie echo, in the wake of the Deepwater Horizon disaster, the
Wall Street Journal
described the Minerals Management Service (MMS), the government agency that oversees offshore drilling, this way: it “doesn’t write or implement most safety regulations, having gradually shifted such responsibilities to the oil industry itself”; it “seldom referred safety or environmental violations to the Justice Department for criminal prosecution, even when it should have done so”; and it “got out of the business of telling companies what training was necessary for workers involved in keeping wells from gushing out of control.”
²⁴
Florida senator Bill Nelson summed it up: “If MMS wasn’t asleep at the wheel, it sure was letting Big Oil do most of the driving.”
²⁵
Chris Oynes, the Interior Department’s top official overseeing offshore oil and gas drilling, announced his
retirement shortly after the disastrous explosion, and Elizabeth Birnbaum, the head of MMS, was forced out thirty-seven days after the spill began—just another pair of resignations that came too late to make a difference.
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27

The problem isn’t a shortage of regulators. It’s the way we’ve allowed the regulated to game the system. The federal government has entire agencies dedicated to overseeing offshore drilling and the mining industry. Indeed, a federal inspector was at the Upper Big Branch mine hours before it blew up.
²⁸

Similarly, there are plenty of financial regulatory agencies.
²⁹
In fact, before the economic meltdown there were dozens of federal regulators dedicated to keeping an eye on each of the big banks—in many cases, with offices inside the premises of the banks themselves. Fannie Mae and Freddie Mac had the Office of Federal Housing Enterprise Oversight dedicated to them, and the SEC, which monitored their securities filings, provided an additional layer of oversight.
³⁰
And, after Bear Stearns crashed, the New York Fed had a team of examiners at Lehman Brothers every day.
³¹
And yet they still missed the impending economic collapse.

Regulations are “very difficult to comply with,” and “so many of the laws” are “nonsensical,” in the words of Don Blankenship, the chief executive officer of Massey Energy, the company that owns the Upper Big Branch mine, which just happens to have a shocking history of safety violations.
³²

The
Wall Street Journal
cites the arguments of oil industry executives and regulators who claim “that offshore operations have become so complicated that regulators ultimately must rely on the oil companies and drilling contractors to proceed safely.”
³³
“There has been a very good record in deep water [drilling],”
said Lars Herbst, head of the MMS’s Gulf of Mexico region, “up until the point of [the Deepwater Horizon] accident.”
³⁴
Other than that, Mrs. Lincoln, how did you enjoy the play?

Similarly, the reason the financial industry can’t be regulated adequately is because, as Alan Greenspan put it during his 2010 testimony before the Financial Crisis Inquiry Commission, “the complexity is awesome,” and regulators “are reaching far beyond [their] capacities.”
³⁵

That is, of course, exactly the way Wall Street designed it. To the financial world, “awesome complexity” is a feature, not a bug.

The mining and oil-drilling stories are remarkably similar to what happened in the financial industry over the past decade. A disaster occurs. Politicians are “outraged” and demand reform. Laws are passed. And then, when the next disaster occurs that the new laws were supposed to protect against, we find out about the loopholes in the last set of “reforms.”

Massey offers a textbook—and tragic—example of how this works. After the 2006 Sago mine disaster killed twelve miners in West Virginia, mining regulations were enacted that called for a company with a “pattern of violations” to be subject to a much greater level of scrutiny.
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If you’re looking for the poster child for the phrase “pattern of violations,” it’s Massey Energy. In 2009, its Upper Big Branch mine was ordered to be temporarily closed more than sixty times.
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That same year, the mine was cited for 515 violations.
³⁸
In 2010, by the time of the explosion, it had already received another 124 violations.
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What’s more, in the ten years before the Upper Big Branch explosion, twenty people had been killed at mines run by Massey.
⁴⁰

So how did Massey escape greater oversight following its
pattern of violations? It turns out that a loophole written into the law says that if a company contests a violation, it can’t count toward the establishment of a pattern while the matter is being contested.
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At the time of the explosion, Massey was contesting 352 violations at the Upper Big Branch mine alone.
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According to another loophole in the law, a company can delay paying a fine while it contests the violation.
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The result? Only $8 million of $113 million in penalties levied against mining companies since April 2007 had been paid by April 2010—around 7 percent. To people like Don Blankenship—or any big bank CEO, for that matter—that kind of money is seen simply as the cost of doing business; it’s factored into the bottom line, like bribes are in the Third World.
⁴⁴

The BP disaster has a similar story line.
⁴⁵
Between 2001 and 2007, U.S. offshore drilling accidents resulted in 41 deaths and 302 injuries. Over the last decade, the Minerals Management Service expressed concerns about the safety of offshore oil rigs and warned oil companies about the need to have backup safety equipment of the kind that could have prevented the Gulf spill. But, in the face of aggressive lobbying from the oil industry, the agency backed away from its concerns, crossed its fingers, and hoped that the industry would voluntarily police itself.
⁴⁶

The piece of equipment that the industry resisted because it was too costly, known as an acoustic trigger, runs about $500,000.
⁴⁷
The replacement value of the Deepwater Horizon platform, which that $500,000 trigger might have saved, is about $560 million—to say nothing of the untold billions the disaster will cost the company and the entire Gulf region, and the irreplaceable human lives lost when the oil rig exploded.
⁴⁸

As for fines for safety violations levied by the Minerals
Management Service, between 1998 and 2007, BP racked up a dozen safety violations but paid less than $580,000 in penalties—an infinitesimal figure for a company that made $5.6 billion in profits in just the first quarter of 2010.
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Even after the Gulf catastrophe, oil companies were handled with a velvet glove.
⁵¹
According to the
New York Times
, in the five weeks after the Deepwater Horizon blew up and millions of gallons of oil came gushing out, “federal regulators … granted at least 19 environmental waivers for gulf drilling projects and at least 17 drilling permits.” And, wouldn’t you know—one of the exempted projects was run by BP.
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I have no doubt that new regulations will be written in response to these latest oil and mining disasters, just as we have new financial regulations in response to the financial disaster. But by the time these regulations make their way through Congress, the lobbyists will make sure that loopholes are part of the deal—and that the American people are on the losing side of the trade once again.

Disasters—mining, environmental, and financial–are going to keep happening until we reevaluate our priorities and force our elected officials, and the regulators they pick, to put the public interest above the special interests, and until the lives of hardworking Americans take precedence over the corporate bottom line.

Not content with controlling politicians and kneecapping effective government oversight and regulations, corporate America has taken things one step further.
⁵³
As Janine Wedel, author of
Shadow Elite
, and Linda Keenan put it, “businesses aren’t just
sidestepping
or fighting regulators. Their M.O. is to try to make
themselves
the de facto regulators of their own self-interested conduct …”

That’s something else that the mining, oil, and financial industries share: the revolving door between regulators and those they’re supposed to be regulating. The names of the Wall Streeters who have moved into positions of power in Washington are familiar: Hank Paulson, Robert Rubin, Josh Bolten, Neel Kashkari, Mark Patterson—and that’s just from Goldman Sachs.
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But the revolving door between Wall Street and Washington goes far beyond these marquee names. The finance industry has 70 former members of Congress and over 900 former federal employees on its lobbying payroll.
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This includes 33 chiefs of staff, 54 staffers of the House Financial Services Committee and Senate Banking Committee (or a current member of those committees), and 28 legislative directors.
⁵⁶
Five of Senate Banking Committee chair Chris Dodd’s former staffers are now working as banking lobbyists, as are eight former staffers for Senate Banking Committee heavyweights Richard Shelby and Chuck Schumer.
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Of course, the revolving door spins both ways: 18 percent of current House Financial Services committee staffers used to work on K Street.
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On the mining front, former Massey chief operating officer Stanley Suboleski was appointed to be a commissioner of the Federal Mine Safety and Health Review Commission in 2003, and four years later was nominated to run the U.S. Department of Energy’s Office of Fossil Energy.
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At the time of the Upper Big Branch accident he was back on Massey’s board.
⁶⁰
And President Bush named Massey executive Richard Stickler
to head the Mine Safety and Health Administration in 2006.
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Stickler had such a lousy safety record at the companies he’d run, his nomination was twice rejected by senators from both parties, forcing Bush to sneak him in the back door with a recess appointment.
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In other words, the guy Bush tapped to protect miners was precisely the kind of executive the head of the MSHA is supposed to protect miners from.