Man Made

The oil eruption in the Gulf of Mexico is belatedly receiving the attention it deserves from both the public and the president. Given its history the public can be expected to be behind the curve. The president cannot. While the financial responsibility for damage clearly belongs to British Petroleum, the enormity of the consequences takes the affair out of the realm of a purely business matter. It has been argued that since BP has better facilities and more expertise in this field than the government, it should be principal authority in dealing with the problem. This may make fiscal sense. But in the interest of national morale there’s a lot to be said for at the very least a prompt show of federal involvement, particularly in the case of the president. Confidence in its leaders can be a vital and valuable national asset, as Winston Churchill showed in the Battle of Britain.

In the final analysis this is more a scientific than a political matter. It’s my understanding that “relief wells” can diminish if not eliminate the effects of such an accident by drying up the oil in the area surrounding the main well. BP is now drilling them at the accident site, a process that is expected to take three months. Canada requires them to be dug prior to using the main well in its deep water projects.  We don’t require this and I think most of us know why. In the light of what we’ve just learned, digging should begin ASAP at all such existing projects in American waters. But don’t bet on it.

Media spokesmen are already referring to this as the worst oil related disaster in history. I’ll go further and say it’s the worst man made accidental disaster of any kind in history. Dropping the atom bomb was intentional. In another context this incident is mankind’s most serious offense to date in its rape of the planet.

It should be clearer now than it was two months ago that we have no ethical or moral right to construct and utilize a facility unless and until we are certain of our ability to control or contain its potential consequences. Paradoxically those who with this premise are called conservative. On one hand they claim that we are being unfair to future generations in fiscal matters, while on the other espousing “drill baby drill” philosophy. We may be “the greatest nation in the world” in many areas. But a reasonable sense of priorities is not one of them.  

Too Big to Fail

In September of 2008, barely two months before the election, it appeared that America’s biggest financial institutions were about to fail. One of them did. In the opinion of a bipartisan majority of the powers that be, our monetary system was in danger of complete collapse if drastic action was not taken. That majority included the Republican President, majorities of both parties in the Senate and Democrats in the House. The result was TARP government loans of $700 billion to the endangered institutions, much of which has since been repaid.

Several months later, with Democrats now in control of the executive branch, the nation’s economy had avoided calamity, but was still struggling. Using the same basic reasoning, a roughly equivalent amount was loaned to similarly distressed enterprises in an attempt to hasten economic recovery. This time, despite the obvious similarities to TARP, the Congressional vote on the measure was divided along strict party lines.

The fact that a financial meltdown hasn’t taken place doesn’t prove the claim that one would have in the absence of these preventive measures. Still it defies common sense that the organizations receiving government help seem hell bent on repeating the practices engaged in during the years closely preceding the emergency. Since so many Congressmen are virtually on their payroll it becomes that much harder for unencumbered legislators, who voted to help them when needed, to make them agree to discontinue these practices, the way a parent would a child who has just been rescued from trouble.

As with the logic behind the bailouts, the notion that these institutions are too big to fail seems obvious to most people who aren’t beneficiaries of the corporations in question. Without legislation limiting their size and scope they will continue to become even bigger. Reinstating the l933 Glass Steagall act separating commercial from investment banking would be only a part of a necessary beginning.

Like the claimed benefits of the TARP loans the dangers of the size of these institutions can only be proved after the fact, if then. If we’re looking for something provably “too big to fail” all roads lead to a hole in the ground a mile down in the sea.

Passing of the Buck

What may become the worst man made disaster in world history is now taking place in the Gulf of Mexico. Whether it reaches this status depends on when or if the well will be capped. Tuesday the Senate took up the question of responsibility and the answers they received were as expected.  British Petroleum, who sells the produce of the facility, blamed Trans Ocean who installed it, who in turn blamed Halliburton, who was contracted to do the maintenance.

I don’t question these assertions. But I postulate this analogy. If someone at a catered affair dies from eating tainted food the caterer can blame the food retailer who can then blame the wholesaler.  Even the “farmer” who sold the lethal provender might be involved although, if it was meat it would be silly and futile to posthumously prosecute the offending animal. Whatever the accusations; in a court of law the caterer would be the party responsible for restitution, regardless of subsequent litigation.  

The eruption in the Gulf is the starkest example yet of the chances we are taking with our continued dependence on fossil fuels, in this case oil. Most of us have heard the arguments pro and con of this course. It’s the pro part, which relies on oil drilling as a means of “energy independence,” with which I take issue. It may seem simplistic, but I find a corporation named British Petroleum suspect as a source of American energy independence. The same can be said for Royal Dutch Shell. Whatever the corporate ownership, oil from any private company goes on the world market where it is sold at the same price as that from Saudi Arabia and Iran. If oil drilled in America were nationalized the argument, as far as it goes, would have merit. The interests of this country are not dependent on the profits of any corporation, home grown or otherwise. In the case of Goldman Sachs there appears to be an inverse relationship.

Even the extremely hard headed have probably removed their “drill baby drill” bumper sticks while still preaching their gospel, albeit a bit less vociferously. Most of the others have gone underground, but only temporarily. Given this opposition a sufficiently green world is at best a long way off and will require sacrifice by those of us who inhabit it, although this would be alleviated in part by the jobs created. The alternative is a world which one day may be difficult, if not impossible, for human habitation.

It's Not Nice

On September 22, 2008 I sent a letter titled “Great Recession” concerning a recent TV panel’s rumination over whether we were even in a recession. Someone else may already have used the term. But I hadn’t heard it. I used it as a spoof on the panel’s apparent ignorance. Of course we were well into a recession which predictably got worse!

There is a rough parallel between this understatement and the coverage of the oil eruption in the Gulf of Mexico. We are being told that the consequences could become worse than those of the Exxon Valdez spill. The extent of damage then was limited by the amount of oil carried on the ship. Even if the response to the current disaster had been as prompt as possible there would now still be an estimated 210,000 gallons of oil spewing from the floor of the Gulf with no end in sight. Unless and until the well is capped we have no knowledge of the extent to which our seas will be covered by it. The President has put a hold on his recently announced plans to extend offshore drilling. This logically leads to questions about rigs now in operation.

What could be the worst man made disaster in history is unfolding and we are fixated on what didn’t happen in Times Square. Granted it’s hard to make instant headlines out of an indefinitely continuous oil flow. Still the object of our attention says something about our priorities.

The questions that should be asked concern the consequences of the gamut of our commercial activity. The potential scope and intensity of our self inflicted damage seem to increase in tandem with our technology. I recently heard someone on NPR speaking Chamber of Commerce language confidently predict that our environment should be safe for a hundred years. I couldn’t have made a better case for the opposition. What right do we have, for our personal gratification, to make the planet difficult to live in for people not yet born?

For religious folks I offer this take on recent events. God gave us a hint at a West Virginia coal mine. Now He’s letting us know He means business. For secular thinkers like me I offer the wisdom of a TV commercial for Chiffon margarine. “It’s not nice to fool Mother Nature.”

Arbitragers

In my early teens I asked my father what a neighbor who used to take me fishing did for a living. I thought less of the man after being told that he played the stock market. From the perspective of a fourteen year old he was one of the idle rich who did nothing.

Years later another seminal moment for me came on looking up the definition of “arbitrager,” the occupation of Ivan Boesky, one of the pioneers in the breed of culprits spawned during the Reagan presidency. It reads “Someone {engaged in arbitrage} who purchases securities in one market for immediate resale in another in the hope of profiting from the price differential.”              

This definition clearly delineates the function of many of the richest and, in my opinion, least deserving among us. Those who make this profession their life’s work contribute little or nothing other than the portion of their personal wealth spent as consumers. I separate them from the majority of workers in the financial community. It’s doubtful that knowledge of the Goldman Sachs capers went far down the chain of command. While these mid to lower level employees were acting on the instructions of those who support them financially, the same can’t be said of their higher ups, unless the clients who contribute to their livelihood wanted to lose a cool billion.

A recent letter to the editor in the N.Y. Times mentioned that many of today’s rich are not creators, but harvesters of wealth, true in the case of income from interest and dividends on investments. But it is a charitable appraisal of much of the current crop of arbitragers who operate by bringing in the sheaves of crops planted by others. This is not harvesting. It’s poaching. In an ethical context it’s not investment. It’s thievery.

Thievery is punishable by law. But there is historical evidence of it being committed long and often enough for the stolen goods to become not only de facto, but legal property of the thieves. This happened to land once inhabited by American Indians. It is now our property because we were squatters long enough to qualify as owners. We’ve heard the term “squatters’ rights.”  Thieves don’t have these rights as long as they’re simply thieves. If new rules governing the financial community aren’t adopted and enforced, these thieves will one day become accepted legal owners, not only of the swag they’ve accumulated, but whatever they acquire by the same means until further notice.

Illegal Immigration

A hot button issue at the moment is illegal immigration. Republicans, understandably, would like to make it as hot as possible to compete with Wall Street reform, which can only work against them. In this debate all I can say is that I’ve heard arguments from both sides and agree with each, at least to the extent that we have a problem. I disagree with some of the more simplistic solutions.

Lou Dobbs types are correct in claiming that it’s contrary to the national interest to have so many undocumented people in this country. While some true believers have threatened to shoot trespassing census takers, this inconsistency doesn’t invalidate the other part of the argument. We have a right to know who is occupying our premises. The claim that they only take jobs other workers would refuse notwithstanding, there is more competition for any kind of job, now that we’re two years into our decline, than at any time since the Great Depression. As a consumer I’m annoyed when being served by someone hired to deal with the public who doesn’t speak or understand English well enough to communicate. I found this particularly infuriating in a recent verbal tussle with a Citicorp representative, although he could have been speaking from India. It’s also a reasonable that immigrants who are here illegally should not have a leg up in becoming citizens.

On the other hand I consider it axiomatic that these people deserve humane treatment. While acting illegally, their breaking the law is more a matter of survival than of avarice, as in the case of the other folks making headlines these days. Many have been in this country for years and have children who, according to our law, like it or not are U.S. citizens. The idea of jailing them, posed by some enthusiasts, is both cruel and silly. It costs $40 thousand a year to incarcerate a person. Deporting them? I suppose we can afford the fare. But we would either be deporting citizens or, by parental choice, breaking up families. 

Concerning the Arizona law passed this week, there’s nothing that can be said in its favor. A law degree isn’t necessary to know that our borders are subject to federal, not state, purview. When the Arizona National Guard is sent to Iraq or Afghanistan it’s not at behest of the state. Critics of this law who say that it will lead to racial profiling are understating their case. It is racial profiling. Being of extremely fair complexion I’d have no concern over driving through the state. But I’m not certain about my wife who might do well to stay out of the sun before her trip. Can Arizona afford the expense of the extra law enforcement hours required? Or are they willing to tolerate more common garden variety crime. In criticizing this law the question is not where to begin, but where to end.

I have no panacea for dealing with the plethora of illegal immigrants now in this country or those who will be entering it. Increased border control is a reasonable procedure that falls in the “easier said than done” category. The problem is exacerbated and complicated by political ramifications. Whatever the eventual resolution not everybody will be satisfied with it. In my opinion most of the “sure” remedies that I’ve heard at this point are simply dead ass wrong. 

Many Happy Losers

My fondest hopes have just been dashed. I was eagerly waiting for Senate Republicans to fight financial reform the way they fought health care which would have been a sure loser. Now there’s talk of compromise. I suspect that Democrats are in a state of shock on receiving that single GOP vote in the Banking Committee favoring the Dodd bill. It hints at abandoning Mitch McConnell’s claim that the regulations in the bill would lead to more major bank bailouts, like the ones that just followed thirty years of deregulation. I was looking forward to hearing more of that argument.

After reading review of two books on our financial meltdown in the Book Review section of last Sunday's New York Times I realized how little I know about the mechanics of this part of the world of finance. I do know that the problems involved the selling of IOUs and the use of other peoples’ money to that end. But terms like derivatives, hedge funds and credit default swaps still have my head swimming.

According to the review, both books frequently refer to “selling short.”  I remember the phrase “In 1929 I sold short” from Ira Gershwin’s multiple sets of lyrics to Vernon Duke’s "I Can’t Get Started." I’ve always thought the term just meant getting out while the getting’s good. But it’s not that simple. The foundation of the shenanigans we’ve been hearing about is wagering on and profiting from the devaluation of securities. I don’t understand how this sort of bet is placed. It’s evidently more complicated than calling your broker or friendly neighborhood bookie because it requires considerable subterfuge. This suggests that the wager may be something less than kosher. It may be simplistic. But I’d say that a professional financial advisor’s recommending a security that he or she expects to fail and betting on that failure crosses the line separating misplaced speculation from thievery. In the inner circle of practitioners of this technique it may be considered genius.

I’ll wait to see the Republican version of “compromise” before getting my dander up another time, although I expect the worst or, more accurately, the least. To me the guilt goes well beyond the Frenchman named in the SEC suit and includes almost the whole the kit and caboodle, certainly Goldman Sachs chief honcho Lloyd Blankfein. My version of justice, which may be a bit draconian, would have him doing life in jail in a cell adjoining Bernie Madoff’s where they could talk about the good old days. In lieu of that I’ll have to settle for not having to read those two books.