Inept regulation fingered in Great Recession
TheStar.com – business/markets
Published On Wed Jan 26 2011. By David Olive, Business Columnist
Today, the U.S. Financial Crisis Inquiry Commission (FCIC) releases its 576-page tome on what caused the U.S.-originated financial crisis that plunged the world into the Great Recession.
The landmark FCIC report casts blame on feckless tycoons, of course. But this report, written by politicians, candidly places much of the blame on pols overly influenced by corporate lobbyists. And on lax regulators who were all-to-easily cowed by those pols into buying the glib reassurances of Wall Street that it knew what it was doing.
In the aftermath of the Great Recession, we have learned for the umpteenth time that it’s wrong to trust the private sector to do the right thing without rigorous government oversight.
“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire,” the FDIC report will say.
“The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.” (Emphasis added.)
In this case, the pols were well paid to ignore dodgy practices they should have outlawed. Between 1999, the dawn of the current era of financial deregulation, and 2008, the U.S. financial industry spent $2.7 billion (U.S.) to lobby politicians and pressure regulators. And individuals connected to the industry made $1 billion in political campaign donations.
Imagine a zoo with the bars down, and that’s the private sector without able and honest regulation.
Just days before last year’s Upper Big Branch Mine disaster, which cost 29 miners their lives in the worst coal-industry disaster in 40 years, the U.S. Department of Labor issued a report titled, Journeymen Inspectors Do Not Receive Required Periodic Training.
David McAteer, former head of the U.S. Mine Safety and Health Administration, could hardly believe that in the aftermath of the 2006 Sage mine disaster – another case of excess methane levels triggering a fatal explosion – that lessons from Sago had not been applied at the 56 mines operated by Massey Energy, a chronic violator of safety regulations.
“We know how to remove methane and control dust problems,” McAteer told the New York Times during the Upper Big Branch mine tragedy. “The fact that we had [another] explosion with methane or dust suggests we are not doing enough to protect miners.”
A few weeks later in 2010, BP PLC’s offshore exploration rig in the Gulf of Mexico, theDeepwater Horizon, exploded and sank, triggering one of the biggest environmental disasters in U.S. history.
It turned out that the U.S. Interior Department, subjected to intense lobbying by BP, had exempted the Deepwater Horizon project from the usual detailed environmental impact analysis.
Which would have found that no tests had been done to demonstrate that a blow-out preventer would work at the deepest well ever in Gulf history. (It didn’t.) And that no proper assessment had been made of an oil spill’s likely impact on the shoreline, despite the project’s proximity to the Gulf Coast.
The bottom line is that epic disasters – like an unsupervised greed on Wall Street that cost eight million Americans and 400,000 Canadians their jobs in the Great Recession – usually have inadequate or corrupted regulation as a root cause.
There always will be people who want to rob banks, and a criminal-justice system that thwarts and punishes them. But that’s not how it works with vastly more damaging corporate malfeasance, in which the miscreants usually are rewarded with a staggering severance package.
I wish we had no need of regulators. As a taxpayer, I would love to be spared that expense. But then I’d have to count on consistent good behavior from the private sector.
Yet we cannot do that.
Whether it’s alleged employment-law violations at Wal-Mart Stores Inc., or a deadly listeria outbreak at Maple Leaf Foods Inc., or faulty tires on Ford Explorers implicated a decade ago in fatal vehicle rollovers, red tape isn’t what ails our economy. Inadequate public supervision is.
Quite apart from the ethical issues at stake, what impairs our economic efficiency is (a) the ease with which private-sector actors slip into corrupting behavior. And (b) the inability or unwillingness of our “public stewards” to stamp out anti-social business conduct.
Looking back on all these miserable episodes is to recall Edna St. Vincent Millay’s adage that “It’s not one damned thing after another. It’s the same damned thing, over and over.”
< http://www.thestar.com/business/markets/article/928488–inept-regulation-fingered-in-great-recession >