Friday, June 4, 2010

A Little Light Reading – accounting’s role in the banking scandals

I decided to do a little delving into the audits of the banks that folded during the first phase of the financial crisis of 2008/09. Let me tell you that I was not shocked to see not a single warning statement among the lot. Everyone passed the GAAP audit with flying colors. Not a single warning to consumers and investors that the whole house of cards was tilting towards catastrophe.

Should this come as a surprise? If you believe the nonsense about professionalism and integrity then it should. If like me, you simply observe their behavior – it should not. Going all the way back to the collapse of Penn Central Railroad in 1970 to the latest bank failures the accounting industry has failed to serve any purpose other than that required by the corporations who use accounting to cheat, deceive and misrepresent the very core of their business transactions.

After the Enron debacle the big five accounting firms became the bigger 4(sound familiar?) when Arthur Anderson was convicted and sold its assets to another huge firm – Deloitte etc. A new law was enacted (Sarbanes-Oxley Act of 2002) and everything was supposed to be fixed (again – sound familiar?)

Congress passed SOX overwhelmingly and Bush called it the greatest reform of business in US history. What impact did it have? - Apparently none other than to employ more bureaucrats. The same kind of off the books accounting tricks were used in some of the better financial scams recently played on the public.

What did the great accounting firms do? Did they report any trace of Maddoff’s games? Any hint of AIG’s 34 to 1 overstretch? A shadow of the debt dragging GM into bankruptcy? No, not one scintilla of warning or real useful accounting data was projected by the accounting giants. Not this time, not last time, not next time – not ever. The FASB regulations and GAAP rules have been twisted to the point where it is actually a breach of professional conduct to report fraud. Generally accepted accounting principles has become shorthand for give the client the audit he wants for the price he pays.

Accounting rules used to state that auditors HAD to alert the public to any threat of fraud. Then in 1996 the rules were changed to raise the trigger to $5,000 before the auditor COULD report fraud. Additional to the $5000 limit the new law required the incident to be “KNOWN” fraud before it could be reported. Now in today’s legal world nothing is “known” until a court has ruled it so. In other words we went from language requiring auditors to report any fraud to language making it a breach of professional conduct to report any fraud unless it was major and already proven. In non bullshit - fraud was off limits as long as the client paid his bills. The accounting profession has skated by untouched by this latest scandal as it usually does. But be assured there are more rascals in the business world than banks and CEOs. Next time you see an accountant remember you are looking at the essential enablers of all the business scandals for the last 40 years.

Thursday, May 27, 2010

TOLD YOU SO - Oil and hurricanes, drilling defies moratorium

I thought I would just take a moment to reinforce two previous post one regarding hurricanes and oil and the other about drilling despite the moratorium. Nothing much can be added to either post, but in our busy disaster cycle things tend to get lost in the latest calamity. 

NPR reported that NOAA is predicted a busy hurricane season this year. The water in the Atlantic region that spawns hurricanes is 4 degrees hotter than normal. This will add energy to the normal cycle. The prediction is from 14 to 23 tropical storms with 8 to 14 of them reaching hurricane strength. The more storms we have the more likely one of them will interact with the gulf oil spill. Even if it does not pick up oil from the subsurface and oil rich hurricane is a brand new disaster for the record books. Even just normal storms can drive the surface slicks far into the wetlands and river inlets even if oil is not picked up as rain and carried inland.

Secondly, the New York Times has been doing a series of reports on the fact that MMS has continued granting drilling permits despite the alleged presidential moratorium. At the time I had reported that 15 permits had been granted and that number has continue to rise. After my post the agency even approved a permit in the arctic refuge. After a meeting with oil and MMS officials the participants set down to eat a cake decorated with “drill baby drill”. This sort of episode would be edited out of a cheap movie conspiracy thriller as too over the top to be believed.

Well, the American meltdown continues. BP treats the coast guard as their personal employees, defies EPA official and even advises them to contact the industry before issuing any further statements. It does not get more pathetic than this. This must be what Nigerians feel as the oil corporations exercise sovereign authority in there nations replete with a huge army of mercenaries to enforce their will. Also remember, while we are busy watching this disaster on TV, the other calamities are moving forward – debt, corporate lobbyist writing “reform” laws, failing infrastructure, global warming – the beat goes on.


NPR - Big Hurricane Season Expected

NYT - Big Drilling continues despite “moratorium”

Tuesday, May 25, 2010

Bank Reserves Are Phony

The United States has long required that banks keep 10 percent of their total assets in what we broadly call cash. This is usually fiat currency – i.e. paper money either physically at the bank or on reserve with the Federal Reserve. The purpose of this reserve is to guarantee the liquidity and safety of the banking system. Theoretically this will allow any bank to meet the demand to pay out liquidated deposits with cash. Sounds good enough I suppose, although 10 percent is not all that much,  But at least it is some safety margin right?

Wrong – in the mangled beanie baby swap meet which is the American economy most banks routinely meet their reserve requirements by borrowing money at the end of the day and then paying it back the next morning. In this manner, the Federal Reserve will consider that its reserve has been met and all is fine and dandy. They "rent" their security by the hour like hookers getting a room in a sleazy hotel.  Seems appropriate really.

In other words banks commonly do not actually have anywhere near 10 percent of assets in safe cash form. It is all another spun sugar fantasy like most of our finance system. If there was ever a serious run on the banks they would not be in any position to cover any the puny 10 percent reserve mandated by the Fed.

Oh and just to make you feel even better – the Fed waives reserves entirely for the really big money. Things like US corporate time deposits and all deposits made by foreign governments or overseas corporations. Additionally anything in a Eurocurrency deposit is also allowed to have zero reserve.

In other words in a serious financial panic our banks are no more secure than in the 1920s. This little update should take your mind off the destruction of the Gulf of Mexico and the abdication of national sovereignty to BP.  At least for a little while.

Monday, May 24, 2010

BP Defies EPA, Ursurps Coast Guard

Is our government totally under the control of big corporations? Is the power of money so great that the express rule of law is meaningless?  The EPA issues a cease and desist order to BP to stop using corexit – its chosen dispersant which test show to be marginally effective and highly toxic. BP chose to ignore that order. That is it – they say umm nope and the EPA whimpers away. No thunderbolt from the White House, no federal marshals ceasing control of the equipment, no fines – no nothing.

On May 20, the EPA issued an order to select a new dispersant from numerous approved formulas within 24 hours. BP declared that they were going to continue to use corexit which is banned in Europe also. Not only did they ignore the BP deadline, but they scolded the agency on daring to issue orders to BP at all. “Before the Coast Guard and EPA issue further directives a change in dispersant products or monitoring, we would like the opportunity to meet with you to discuss the option…”

Just the day before BP contractors ordered CBS reporters to stop recording film of the spill under threat of arrest. Two US Coast Guard officers were with the BP crew and told CBS “This is BP rules – not ours” Nothing I can say can expand upon this outrage. The day BP sets rules for the press is the death knell of what little access to truth the public has. Apparently, the entire US government is at the beck and call of BP as they handle this “incident” in the manner most conducive to BP interests. A local blog Is This Utopia? tried to contact the USGC regarding local volunteers making “hair booms” to help clean up the oil. When told she needed to talk to higher authority, the Coast Guard transferred her to a BP official.

I for one am done with this pathetic charade. Either the elected government rules this nation or it does not. If Washington is out of business please let me know and I will cease paying taxes. I gave Obama a chance to show otherwise, but he has proven to be as openly in the pocket of corporate interests that any President to date. Apparently corporate takeover of America is complete. This level of inaction is tantamount to abdication of the government to the moneyed elite.


EPA orders BP to change dispersant


CBS reporter threatened with arrest by BP

"Is This Utopia" Blogger told BP is running the USCG

Friday, May 21, 2010

Tax System Will Pass BP's Spill Cost To Taxpayers

In one of the earlier phases of the American meltdown, the IRS gave the big banks a special tax cut. They were given an exemption from tax law that will give them up to 20 years of tax deductions. BP may not get the sweet heart deal the IRS gave to the big banks because after all Secretary Geithner worked for Goldman Sachs, the company that funneled nearly a million dollars into the President’s campaign. But even without the perks of bought influence they can still write off the cost of cleaning up the disaster they created. Every penny they spend will be recorded as an extraordinary business expense and go to reduce their tax burdens. Ultimately, this means that the taxpayers will foot the bill for BP’s gross neglect.

As usual in America they claim that profit is due to the efforts of the capitalist class. It is deemed the product of their individual skill and is the sacred right of the rich. Expense on the other hand is the worker’s problem. Like risk it must be borne by the working class taxpayers. Whether that expense is the normal cost of business or the burden of cleaning up yet another disaster wrought by the stupidity, greed and hubris of the few – the cost is passed on to the many.

The result of this twisted logic is that 72 percent of corporations pay zero tax. Remember, this includes only corporations that paid zero $0.00 in taxes – if they paid a dime they were not included in this number. What percentage of corporations pay more than zero but far less than fair is not known. As you may have noticed, Government spending does not decline to meet this loss in revenue. It continues and most of it is spent on contracts with the very same corporations. For every dollar business evades paying, the working taxpayer has to make up for the taxes lost to the government. It is a brutally unfair system at its very core and minor tinkering here and there will not address its basic injustice.

Thursday, May 20, 2010

Oil and Hurricanes

Oil and water do not mix - I wonder how it will do with hurricanes.  Hurricane season is almost here and this could be the most interesting Summer ever.

Frantic over tar balls in the keys, dead pelicans in Pensacola? Don’t be. There are more interesting things to ponder. Here is a headline from the future: Hurricane Betsy coats east coast of Florida in Toxic black rain” Remember when the scientist were all repeating what they did not know about the oil spill? Well the one thing they did seem to know was that we were only interacting with less than 10 percent of the actual spill. No one of course was sure where the other 90 percent was going.

But it is a good as any bet that it is floating someone in the gulf below the visual level. Either scraping the bottom clean of life or floating suspended halfway below the surface in a great pool of semi dispersed, black death. Now, imagine along comes a hurricane churning up those waters and suspending them in its rain bands. Then said hurricane carrying billions of gallons of petro laden water scatters them all along the Florida coast and hundreds of mile inland. What fun we will have then.

The rain bands from a large hurricane can cover half the state and run its course inland for hundreds of miles. Oil and water do not mix so when the rains of the hurricane finally soak into the soil or run into the rivers and lakes we will have a nice even coat of oil all over – well everything. I would think even our Oil industry scientists can imagine the dimensions of that problem. Oil contamination of soil cannot be readily exposed to the “make them so small no one can see them” magic that passes for cleanup at sea.

Huge swaths of homes contaminated, groves, cropland and pastures poisoned, water supplies rendered non potable. This is just one of the nightmare scenarios that have been left out of the Government’s handling of this disaster. Or should I say MMS and BP’s handling of the “incident” Some incident. Well look on the bright side, maybe the Federal Reserve will have just enough paper left to print up one more bailout. I would love to sell my land and move to Canada.

Oil and water do not mix. Neither do deep sea environments and shoddy engineering. Nor do wild experiments with limited knowledge and even less ability to correct. But apparently corrupt government, bought out scientists and greedy corporations do just fine together.

Wednesday, May 19, 2010

MMS Oil Fines Are A Joke

What to know the difference between the EPA and MMS? Under the EPA, if you spill 25,000 gallons of gas in the soil of Maryland, you will pay $4,000,000 in fines and over $34,000,000 in total other cost. Under the MMS you can spill between 275,000 and 2,000,000 gallons a day and have your fine limited to $35,000 in fines and $75,000,000 in total cost. But as always the devil is in the details.

Interior department rules limit MMS to maximum $35,000 fines per incident. Of course these can be added up but the basic unit of infraction is a joke. We will not even discuss the collusion and corruption which is being exposed in the relationship between MMS and big oil. The odds of actually receiving any type of fine at all are miniscule. As reported in a previous post, in the last 18 years, the agency has levied a bare million dollars a year in fines. This is the amount charged; the amount collected was a fraction of that. All this on an industry drawing billions in profit from public lands. Offshore drilling racks up over 3 major violations a month and has a safety record among the worst industries. BP has paid barely $580,000 in the last decade – it made over $5,600,000,000 in the last 3 months. Equalizing those numbers to a monthly rate BP which had over a 12 major incidents in that time paid barely $4,100 a month while making $1,866,666,666 a month. That is 0.0000002589 percent of profits while committing major violations 10.00 percent of the months.

I realize those numbers are hard to grasp and that is part of the magic MMS and their corporate buddies use to get away with theft and corruption. They overwhelm the public and we have to fall back upon a trust that the regulators are doing their basic jobs. MMS is clearly not doing its job, in fact they appear to be more a public relations and cost control arm of the oil industries than a servant of the American people.

Unfortunately this “cozy” relationship as Obama puts it was not limited to Bush politics. Even the normally responsible EPA has become less and less likely to punish corporations with fines that would actually punish behavior effectively. In 2001 Exxon was fined $4,000,000 for spilling 25,000 gallons of gas in Maryland. A month ago the EPA fined and received $418,000 for a spill of 45,150 gallons of gas in Oklahoma. That is a huge degradation in the punitive impact. For an industry that rounds its financial statements up to the nearest million a $418,000 fine will not even be a footnote on their profit report.

The best way for the Obama administration to let the corporations know he means business is to start by cleaning up his own house. Starting with MMS officials need to be sacked wholesale and criminal investigations begun on them. The fine limits of $35,000 per incident and $75,000,000 total need to be scrapped. Not raised but done away with. In an industry of unlimited profits the risk for flagrant abuse needs to be unlimited.


EPA, $418k fine for Magellan oil

$4 million dollar fine for Exxon

The American Meltdown, MMS fines since 1990

Tuesday, May 18, 2010

A Modest Proposal Regarding the Gulf Oil Spill

The AP quotes British Petroleum CEO Tony Hayward as reassuring us that the “incident’ in the gulf is going to be just fine. "I think the environmental impact of this disaster is likely to have been very, very modest.” Well, there you have it – we are all worrying for nothing. I mean BP and the scientists cannot tell us how much oil is leaking, where it is going, how it will disperse, what chemicals they are dumping in the water, how long the oil will – well you get it – they cannot tell us anything with certainty. But Tony is sure that it is going to be “very, very modest”

Perhaps I should look on the bright side. Instead of focusing on the biological impact of millions of gallons of a poison known for its almost permanent toxicity, I need to look on the bright side. Yes, yes, perhaps that all we need a nice chat with Dr. Phil.

Let’s imagine the upside in all this. Oil is known for its ability to disperse light into prismatic sheen. Imagine the tourist’s amazement when they see the sun rise over the gulf and all that southern sweet crude converts mere sunlight into a rainbow light show. Disney pays millions each year for their fireworks displays over Orlando. But, now BP has given the gift of eternal rainbows to everyone near the beach. Everyone from tiny vending stands to 4 star hotels will see an increase in tourist value all for free thanks to the quiet people at BP.

There must be other ways to turn this frown upside down. Oil is much denser than water so it can absorb heat from the sun far more efficiently. With the modest help of BP our gulf waters will know warm up even sooner that before. Beach tourism can start as early as a month or more earlier and last longer into the Fall.

Here is another modest benefit to make all you grumpy grumps feel better about oil spills. Do not underestimate the increase in employment this will create. Rich people will need their beaches to remain white at all costs so people will be employed taking clean sand from other people’s beaches or even wasteful national parks and carting it to Palm beach. Let us not focus on the mess of cleaning up tar and dead animals – let’s just think of the job opportunities. This economic boom should be long term too. Oil last a long time. Plus imagine the long term careers in oncology as petrochemicals work their way through the ecosystem.

If everyone will quit being so gloom and doom even the worst elements have a happy face. Your beach got hit with a slick? Dead pelicans and dolphins litter your sand? Dispersants created some sort of mutant shrimp that eat lycra out of swimsuits and belch toxic hexane?  Do not worry; even this can be made into a grand opportunity with a modest rethinking. So you think you have a toxic, filthy, blacked, death strewn nightmare on your hands? No, my friend you have prime shooting locations for SciFi channel made for TV movies. Not only will you have a new business opportunity but maybe you can eat lunch with Lorenzo Llamas.

They really need to get the news media working on this hidden story. This is the kind of feel good line that just cries out for Katie Couric’s pixyish little touch. I think Tony Hayward was being modest himself. With a little positive thinking we can look on this as BP’s contribution to a new and exciting tomorrow.

P.S.  Golly I am so excited about this.  I already thought of a modest way to improve tourism thanks to the folks at BP.  We can market our beaches to the Russian and East Europeans.  They would love our warm weather and they are already used to pollution.  Here is the ad campaign:  "America's Gulf Coast - it's the other Black Sea, only warmer and with free suntan oil."

Monday, May 17, 2010

The Constitution Was Written For Child Molesters Too.

May 17, 2010 the Supreme Court ruled 7 to 2 that is was constitutional to hold inmates beyond the time ordered by the trial process. Anthony Scalia and Clarence Thomas were the sole opposing Justices. Two of the most conservative people ever on the court were the only ones to stand for justice and process of law against tyranny. In a single stroke they invalidated the 14th amendment which guarantees due process and equal treatment under the law. The 14th amendment has been the touchtone of civil liberties and it has not be tossed into the junk pile of hysterical overreaction which led to the Patriot Act and US citizens being targeted for death by the CIA.

Basically you can be charged with a crime – held and put to trial, receive a sentence and serve that sentence and still be held at the whim of authority. Today it is being applied only to people convicted of a vile act. But it is the beginning of the end when we allow Constitutional and civil rights to be tossed aside by anger or revulsion. Even in some of the darkest days of the West people have depended on the rule of law. Joan of Arc was charged with treason, heresy and witchcraft yet even she had the slim hope of a trial. Rapist, mass murderers and even cannibals have been set before a court and lived and died by that judgment. The Nazis were held before the Nuremberg court and bound by their resolution. No one hauled Carl Donitz back into jail after his sentence was served even though his wolf packs sank hospital ships and civilian liners.

The court in fact ignored any arguments regarding the 14th amendment and focused on the power of government to punish crime and maintain security. Security is always the watchword when freedom is being destroyed. If the citizens lose the right to equal application of law then we have no hope of fending off further assaults against our liberties. Benjamin Franklin stated: “They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety.”

I cannot think of a single act more dangerous in a time when the Federal government is continuing a slide towards martial governance. With restraints on Executive power declared meaningless by John Yoo – a middle level department of Justice Attorney and then rushed into concrete acts of secrecy and violation of treaty and congressional rights by Dick Cheney and the George Bush White House but kept in place by the Obama administration. With an Attorney General that declared the Geneva Convention “quaint” and stated that the constitution does not cover the writ of habeas corpus. With Department of Justice attorneys called “terrorists” because they dared to extend legal protection to detainees. All of this is occurring in an America whipped into frenzies of paranoia and despair. Now to have the Supreme Court striking down major principles of the Constitution stretching back all the way to the founding of English Common law is an unmitigated disaster for freedom in the United States.

I could discuss the particulars of the crimes and acts invoked in the ruling. But they are irrelevant. If we were discussing sentencing or even evidence they may be pertinent. But that is not the issue at stake here. It is the rule of law. If you are held before a jury of your peers and convicted under civil law are you or are you not in a contract that binds both ways. If authority can constantly reach out and constrain you beyond the actions called for in a court of law then we are lost as a free people. This is precisely the mechanism used by the USSR to enprison Aleksandr Solzenitzen and millions of other "disturbed" people in the gulags of Siberia. No matter how low or loathsome the citizen being so treated the constitution must apply to the few or it is lost to us all.

I feel we go to sleep tonight in an America that is fundamentally coarsened and weakened and awake tomorrow in a world where people like Adams and Jefferson would have been silenced long before they ever wrote a word in Philadelphia. Actually that is such a pale and impotent analogy to make before such a disaster. The rule of law is the loss before us and it clears the descent to a naked despotism that George III never dreamed of.

Why Banks Aren’t Lending

A lot of speculation has been tossed about as to why the big 6 American banks are not lending. The TARP bailout was supposedly given to them in order to unfreeze credit and get lending going again in the US. A lot of anger and frustration has been vented on them for their total lack of doing so.

None of this anger has translated to action against the banks of course. Why is this happening? I think the answers are clear, we do not see them because we do not want to. There are five major reasons why the big 6 banks in America are not lending money to the public.

First, half of the big “banks” are not banks at all but investment houses. Goldman Sachs, Morgan Stanley, JP Morgan Chase are only banks because the Federal Reserve designated them banks so they could access the unlimited liquidity of the Fed printing presses. Only Citigroup, Bank of America and Wells Fargo were and are banks in the traditional sense. With these brokerage houses magically turned into banks they also get access to FDIC insurance. Meaning while Goldman Sachs is selling people betting share on the latest spun sugar fantasy investment, the whole load of crap is backed by the US taxpayer.

Second, they are not loaning because the spread on money borrowed from the Fed at 0.25 percent interest and then invested in 10 year Fed bonds paying 3.56 percent is better and safer than profit from traditional loans. It is a simple matter of accessing Fed funds then using those funds to buy Fed bonds and let the interest spread roll in on capital that just got created in a flash of magic.

Third, they are not loaning because they aren’t supposed to. The second item guarantees that banks will not be punished by the Federal Reserve for not loaning to Main Street because selling its debt is more important to the US government than any other priority. As long as banks are monetarizing the US debt by buying US bonds then they are fulfilling the most critical function of the Fed right now and that is pumping enough paper into the system so that our debt can be funded. This is the ultimate dues ex machine. By making investment corporations into phony banks, the Fed gave them access to borrow unlimited dollars from the government presses. This fountain of fiat capital is then invested in government bonds that no respectable source would touch and funds an insupportable US debt. The nice little interest spread on free Fed money and Fed bonds is Uncle Sam’s way of paying the banks for doing its dirty work.

A little extra problem with pumping all this created money into the system is that it must ultimately create inflation. More paper by definition lowers the currency value. This is a real problem but as long as the created wealth is used to buy debt, the capitol stays locked up and is not released as currency into the economy. This will contain the problem in the short run. The US government probably never planned beyond the short run in its history. With bankruptcy staring them in the face they certainly cannot worry about anything beyond short term fixes.

There you have it, three reasons why the banks are not loaning money to the public. They aren’t banks to start with. They don’t have to with profits from US bonds. Finally, they aren’t supposed to as long as they monetarize the US debt.

Saturday, May 15, 2010

A post script on the MMS scandal

In my post on MMS and its outright illegal activities in the name of the oil companies I mentioned that they had issued hundreds of drill permits without the proper environmental and safety approvals.  One in particular stood out - want to guess which one?  That's right - good old Deepwater Horizon was drilled over protests and in violations of law.

You just could not make this up - its like a clown circus.  God I hate clowns.

Friday, May 14, 2010

Government Aids Oil Companies In Breaking Law

The department of the Interior’s MMS or Minerals Management Service is apparently going beyond passively ignoring the abuse of mining regulation and has begun to actively facilitate the abuse and even outright breaking of those laws. As discussed in a previous post, the MMS has long ceased to be a guard dog of the public lands and has become the lapdog of the industry it is charged with regulating. Wow, that is unusual for an American regulatory body, usually like the USDA, FED, SEC they are just right on top of things. Well, if you mean on top as in a rug under which corporate corruption is swept then you would be right.

According to sources gathered by the New York Times, the MMS has a long record of allowing the oil corporations to drill without the permission from NOAA and other environmental agencies. NOAA is the National Oceanic and Atmospheric Administration – it is one of the agencies charged with monitoring the environmental impact of MMS actions. Its approval is required by law for all actions taken. Yet this law was routinely flouted by the MMS in order to smooth the way for corporate greed.

When asked about the lack of NOAA approval, MMS spokesperson Kendra Barkoff (I swear I did not make up that name – it is straight from the evil character list from the Bond movies!) stated that the MMS was in full consultation with NOAA. The law says agreement – not consultation. When asked about permits, Barkoff refused to answer.

MMS did more for industry than simply allowing them to drill without permits. They also issued permission for companies to write their own environmental impact studies and to ignore them all together in many cases. To their credit, there is a long list of scientists who are current or prior employees that have spoken up. The result was to be ignored, or have your report rewritten by a friendlier scientist or even by the oil industry itself. Warnings about leaking equipment and dangerous drilling were ignored. Ignoring whistle blowers was the rule all the way up to the top of the Interior department. Letters from scientists and Congressman where answered by silence.

Well, I have painted a sorry scene haven’t I? But at least we can be glad that things are changing now that the Deepwater Horizon “incident” as MMS deemed it, has occurred. Everything is better, the rules are being enforced and the people’s environment is being safeguarded. After all, Secretary Salazar has decreed that he will allow no new drilling until all concerns are answered.

A search of the MMS website shows that in the weeks since the “incident”, MMS has given application to drill APD approval to 15 drilling plans. Despite the fact that this data is on their very own website, the Interior department has denied issuing any permits and MMS simply refuses to answer. Seems we can add direct government collusion and criminal activity to the list of things leading to the great American meltdown.


New York Times, May 13, 2010,

MMS database on APD approvals

For want of a nail… an oil rig is lost

"For want of a nail, the shoe was lost; For want of the shoe, the horse was lost; For want of the horse, the rider was lost; For want of the rider, the battle was lost; For want of the battle, the kingdom was lost; And all for the want of a nail." This was Shakespeare’s lament for Richard III. It bemoans the great consequences of small failings in complex systems.

Today, America is facing an environmental and economic disaster of unknown proportions in the Gulf of Mexico. Apparently, we may be facing this calamity from something as simple as a dead battery. The House Energy and Commerce Committee's subcommittee on oversight released documents which indicate that among several failings the critical blow out preventer had a dead battery that should have been used to fire off metal rams to seal off any blowout in case of an emergency.

A dead battery. The drilling rig is state of the art technology - complexity piled upon complexity. It had accounted for 260 failure scenarios and built complex systems to recognize and contain them. But there was no one and nothing to check on a dead battery. If it were not for the photos I just saw of dead dolphins I would laugh. This is what our science and technology comes to when the drawing board meets the sea.

We have, as usual designed a system so complex that no one can fully comprehend it nor predict its behavior. Our forays into poking holes in water so deep it creates ice in the Gulf of Mexico have not gone all that well. Apparently, they were based on hopes and prayer and a lust for profit. Like the financial spider webs woven by Goldman Sach’s “fabulous Fab” we have created a system we cannot control.

We will attempt to mitigate the problems by tossing yet more complexity at the situation. More technology, more checklists, more bureaucracy. The American meltdown has much in common with the Roman and French meltdowns before them. Each society tried to fix the problems caused by its systems by piling more of the exact type of system on them until they collapsed under their own weight. When Rome could not finance its empire, it invaded neighboring lands to loot them of gold and slaves. This added more territory to manage and increased cost – creating a need for even more expansion and thus more expense in a fatal loop that ended in collapse. The corrupt and incompetent bureaucracies of France could not perform their duties so the French added layer upon layer of new equally corrupt and incompetent bureaucrats until eventually the debt burden caused taxes to rise to rebellious levels causing a little interlude call the Terror. American is following the same roads down to meltdown. We try to fix systemic problems by expanding the systems. We try to solve our debt problem by borrowing and prevent engineering hubris by making the systems more complicated.

What we needed was a diehard battery and someone capable of checking on it once in a while. What we will get is economic collapse along the gulf and environmental destruction beyond our capacity to understand.

Wednesday, May 12, 2010

Gulf Oil DIsaster - we don't know should mean we don't do...

Back to the idea of overcomplexity.  I was listening to a panel of scientists discussing the Gulf oil disaster or “incident” as it is referred to by its government regulators. The panel was stuffed with people picked for their expertise in Oceanography, oil, and the environment. The moderator was asking them a series of questions mostly centered on the economic impact to Florida. The panel was answering those questions with answers all centered on their ignorance. No one of these experts knew anything it seems.

Who can tell us how this will affect the life cycle of the gulf? We have no idea. What will happen to oil that sinks to the bottom? We have no idea. When will we be able to stop the outflow of oil? We have no idea. Where will the deep ocean currents carry the oil? We have no idea. Why does 90 percent of the spilled oil go unaccounted for? We have – you guessed it – no idea.

I do not mean this as a diatribe against science. Although one does wonder where the industry managed to find scientists to claim they actually did know something. During their application process dozens of scientists expounded on the safety and safeguards BP had in place. They filed briefs on how swiftly and completely any spills could be dealt with. They drew charts explain exactly where any slicks would go and where they could be contained. Now all such claims to knowledge of any sort on any level of certainty seem to have vanished. Reminds one of the gulls at the beach – all squawking around when there is bread to be eaten. Then gone the moment a storm is brewing.

The point is, that if we do not have sufficient information we should not be conducting experiments which place our economy, our environment and our very lives at stake. If we do not know how to seal wells deep on the ocean floor – then perhaps we should not drill them. If we do not understand how oil spills affect the worlds primary food chain – perhaps we should not exposed them to that risk. If we do not understand the engineering necessary to undo something – perhaps we had better leave it undone.

It is our cult of progress and the belief in the omniscience of science that allows us to commits such huge acts of hubris. Not that this is limited to oil drilling either. We are joyfully going about altering genes on a wholesale level when our knowledge of the complex interactions that will follow is tragically, pathetically limited. We are pumping scores of pharmaceuticals into our bloodstreams with little to no knowledge of how these complex chemicals react in combination with each other. In fact, rarely is our knowledge fulsome enough to predict the future outcomes of our adventures. Again, not that science is cause behind these issues – as in all things American - money is the mover unmoved. But, at the very least, science with a small s needs to quit acting like Science with a large S.

I grew up in central Florida, I have been to Epcot uncounted times and I remember the speech before you enter the “living seas” exhibit. “We know more about the surface of the moon than we do about our own oceans” Gee,who knew?

Saturday, May 8, 2010

Pull the plug on Wall Street’s Computers Before They Cut Our Throat.

Our entire civilization has become so complex that it has almost ceased to be understandable in any rational terms. Nothing is safe from the super complexity of modernity.  The price of something as simple and basic as onions in the corner market does not depend upon things as simple as weather and fair trade any longer. No - now food is a commodity, it is traded, speculated for and against and reduced to a data set for most of its time before ending up on top of a hamburger. As a commodity it is shipped all over the world in subsidized transport burning oil like it was water to move onions across the globe in concord to orders issued from a great complex of wholesale distributors. Computers calculate bids and sales from commodity brokers who are watching flickering internet displays projecting future prices based on complex calculations of weather, oil cost, possibility of war or interruption of supply, current and future production, demand and a million other factors.

Onions are a mere example, the same thing happens to all raw materials and supplies. Finance is subject to even more torturous complexity in the modern search for more and more profit from less and less real worth. Somewhere a futures contract for the delivery of those onions from fields in outside Santiago to markets in Sydney is bundled in with millions of other contracts and put forward as a subcomponent of a commodities derivative being traded across internet lines from New York to London to Berlin then over to Shanghai. This commodities derivative will be bundled with some bundled mortgages securitizing a security being traded in Chicago against surety debt swap agreements being negotiated in Wall Street to provide funding to a firm which is backing a Bond for roads in Athens being used to guarantee a loans coming from investors in Dubai and Indonesia.

It is all just too absurd. To quote “Fabulous Fab” of Goldman Sachs we are “standing in the middle of all these complex, highly leveraged, exotic trades created without necessarily understanding all of the implications of those monstruosities!!!” This was shown in excruciating detail on Thursday May 6, 2010 when the New York Stock exchange’s Dow Jones Industrial index dropped nearly 1000 points in a matter of minutes. Trillions of Dollars of supposed value was vanishing in less time that it takes to boil an egg. Even more ridiculously, the market was being driven by computer programs working faster that men can think or respond. Insane supposedly impossible things were happening. Major corporation’s stock value dropped to zero. Not a penny – but zero. Meaning an infinite number of people could buy the company for no pennies – nothing. Similarly, a few stocks went up over 3,300,000 percent in seconds.

This is ridiculous. It would funny if it had not placed the fortunes and livelihoods of millions of people at the mercy of a trader’s fat finger trying to use an I phone virtual keyboard sitting at some Manhattan sushi bar. This is actually one of the theories being tossed around - how amazingly tragic. Another theory is perhaps it was insider trading trying to bring about potential for huge profit. Supposedly the Exchange was going to nullify all trades during that period where variances exceeded 60%. We will see if that really happens. If it mean profit for the few from the many - I doubt it will be reversed.  Maybe it was a cyber attack being tested. If that is so, then clearly we need to unhook ourselves from the vulnerable complexities that allowed it.

How this happened is therefore still under debate. But that it did happen should be a ringing alarm that our financial system like most of our society is over complicated and under regulated. We as a nation need to do what some financial firms did yank the plug. Yes it is true some firms realized that their technology was out of control and literally pulled the plug on their computers to try and break free from their tyranny. As Scotty of Star Trek said “the more you over think the plumbing, the easier it is to stop up the drain.”

Wednesday, May 5, 2010

Regulators Calls the Gulf Disaster an “Incident”

Minerals Management Service is a division of the Interior Department of the US government. Its purpose is to manage and regulate the people’s resources that lie in offshore American waters.  On the main page of its website it lists important current issues in a column on the right side of the page. Number one is an announcement that Secretary Salazar has approved windmills for Cape Cod. Number two is something entitled “Deepwater Horizon Incident”

For those of you who are confused the “Deepwater Horizon Incident” is also known as the unprecedented disaster that is pumping unmeasured amounts of oil into the Gulf of Mexico. Destroying Fisheries and bird breeding estuaries. Devastating tourism and disrupting shipping throughout the gulf and into the Mississippi river.  That's quite an incident.

I would hope that title proves some rhetorical point regarding the MMS’s attitude towards maintaining even the bare minimum of regulatory responsibility. I won’t hammer it into the ground because I think that off the cuff remarks reflects the heart of their true attitude. Do they really think millions of Americans are bringing up their webpage to see photo ops of the Interior Secretary announcing the sale of yet more leases in the gulf? This kind of asleep grasp of the facts cannot be explained by mere incompetence alone. I think it shows the cozy, just kidding attitude that the US Government takes in all its regulatory relationships.

Clearly, Interior and the MMS is not the only agency with a hands off attitude to the corporations they allegedly regulate. The FED, SEC and Treasury are still bailing out the recent financial meltdown. Commerce and its agencies are so afraid of offending China and the American Retail corporations that stores are still filled with dangerous Chinese imports. The list goes on and on. Washington creates regulatory agencies staffs them with sheltered workshop incompetents and patronage appointments and they go blithely on regulating no one and nothing.

American bureaucracy has failed by inability or by design to manage any of the issues set before it. This failure is exceeded in history only by the multilayered impotence of the French just prior to the “incident of 1789”. But even by these standards the Interior department is an appalling example. Under its watch, taxpayers build roads so lumber companies can cut trees in the last remaining virgin forests. Coal companies blast the tops off of 500 Appalachian Mountains using the equivalent of a Hiroshima load of explosives each and every week of the year. Oil companies destroy economies and environments and get hit with pathetic little fines and apologetic reminders to follow safety regulations.

Now mind you MMS regularly posts misleading press statements that would lead you to think they are aggressively pursuing violators. Those press releases pass the smell test about as much as a gulf beach covered in dead fish. From release to release they change the parameters and they never mention enough in one statement to get a full picture. You have to hunt for the same data on the same events and try to do your own analysis. The closest they did to full disclosure of their true impact on violators was in an April 2008 release # 3806. There we can learn that in the period “Between August 1990 and January 2008, MMS initiated 623 civil penalty reviews that resulted in 498 civil penalties. Operators have paid a total of $18,591,792 in fines.” Eighteen million in fines over 18 years for an industry that require almost 3 regulatory reviews a month? Fines were reviewed in 2008 and set at the rate of $35,000 per incident. With oil revenues in the billions of dollars, once can assume that fines such as this would not even show up on their income statements due to rounding limits.

By the way on the page specifically for the gulf region MMS has another important announcement directly beneath the “incident’ – this vital message? – “2010 offshore industry safety awards postponed”. You just cannot make this stuff up – it’s pathetic.

No my friends, these are not guard dogs of the nation’s resources. The MMS and the Interior department like most regulatory agencies have been so neutered as to be mere accessories to the corporate press offices. Their guiding regulations and authority has been so diminished as to make it clear what the government wants from them. Trouble free reports and hands off investigations so the corporate campaign funds keep rolling in. Happy rich corporations mean happy cash laden lobbyists and that means reelection and kickbacks. Our government’s loyalties lie with the industries they are charged with monitoring and not with the American public.

MMS website

MMS press release

Monday, May 3, 2010

Greenspan Said "Hush the Public May Hear" in 2004

Huffington Post contributor Ryan Grim reported more evidence of the overweening arrogance attached to the American lords of finance. Fed Chairman Alan Greenspan is on record urging the members of the Federal Reserve to restrict conversations on the housing bubble because it may draw in the ignorant masses. Specifically he is quoted as saying the following: "We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand."

This episode is detailed in a transcript of Fed March 2004 meeting. It is only the latest piece of information to leak out making two things all too clear.

1) First, the Federal Reserve and banking officials knew we were in a giant real estate bubble at least as early as 2004.

2) Secondly, Greenspan at least was worried about involving anyone in the debate other than the certified experts of his self justifying inbred board of officials. 

Greenspan, the Federal Reserve Board have their fingerprints all over the paper trail leading to the great American meltdown which has cost us close to 9 trillion so far and counting. I believe his language is within the realm of suppression and conspiracy. Greenspan needs to trade his Italian pinstripes in for some nice prison orange.

More Bad News About Oil

For those of you who read my last post, you know I think that the big oil corporations will seek to maximize claims of turmoil and interference in the transport and refining of oil and use it as an excuse to hike prices. Typical manipulation of the market to maximize profits while minimizing service to the US economy.

Well that was the bad news, this is the worse news. Unlike US consumption of oil which has declined 5% the use of oil in China has risen by almost 73% in the same period. The recent huge recession has eased use even further. Just to be clear – most of this reduction has not come about through increased efficiency. The reduction in US oil consumption is mostly a factor of our economic meltdown to a purely consuming nation. The fact is running forklifts around unloading goods made in China uses less oil than producing the items here.

China’s increase shows no signs of abating and the Indian and Chinese economies are showing signs of picking up. Despite common thought – the Asian super economies have become large enough to be self supporting. Unlike the US - both China and India are producing more middle class people and the middle class is the engine of economic growth. As a natural effect of this growth their demand for oil is increasing. Soon it will consume the tiny surplus between world oil production and demand.

Once that margin of surplus is gone – the price will rise to whatever the market will bear. Does anyone think we can outbid the Chinese on those oil shipments? Not a chance. Once oil supply dips into a world shortage prices will fly through the roof. It may not happen this year or even in 5 years but it will happen. The only way to avoid this disaster would be a giant meltdown in the Chinese and Indian economies to match the scale of our own. Since both nations are largely following the exact economic path we followed decades ago – that seems likely. But not in time to reduce oil pressure on the US in the incoming years. There is going to be a huge increase in oil prices to balance supply to demand and odds are we will never see another downward trend in oil prices as peak oil is either here or close enough for speculators to smell it.

We have squandered every chance we ever had to correct America’s dependence on oil and soon the time will come to pay the piper. What little real economy remains in an America globalized and financialized to death will crumble under oil prices that simply will not support the American way of doing business. It is no one’s fault but our own. President Carter warned us in the 1970s that we had to reduce oil consumption. If we had increased energy efficiency just 1percent a year from that time the United States would be an oil exporting nation today. America is headed towards an economic meltdown because we are short sided hedonist worshipping credit and short term profit over real solid national values.

Saturday, May 1, 2010

Gulf Oil Rig Disaster Will Reap Windfall Profits

Now it is unlikely that BP will be able to turn this horrible disaster to their advantage but you can bet your bottom dollar the other oil companies do. The reality is that this spill is right in the heart of America’s oil region. The slick and its cleanup and containment will create some delays in shipping oil into the Gulf refineries. This will create a delay and possible shortfall in gasoline production just as the summer driving season begins.

This very real problem will soon be portrayed as a huge one. The oil companies will complain about the Herculean efforts that are required to get raw oil into their refineries. They will explain how nobly they are trying to keep production up. But they just cannot. So the only thing left to do is raise prices. Otherwise profits may fall and that is not ever allowed no matter how much fault lies with the oil companies. Profit is sacred – employee salaries can fall and prices can rise but holy profit must ever increase. Gosh darn it we are sorry but it’s not our fault.

Well I could explain more – but gee we have all been through this drill before. So get ready for a big spike in gasoline prices. Oh and if by chance the crisis in the gulf gets resolved – they will certainly need to patch up some infrastructure and close a few pipelines here and there. Oh yes, this is going to put them price back up to $4.00 a gallon before it is over. Hide and watch as the great American meltdown reaches into your back pocket again.

Thursday, April 29, 2010

Goldman Hearings are Sham Theater

A special adaptation of Little Red Riding Hood and the Big Bad Wolf is open for a special onetime run in Washington. Oh poor little Red (that would be the American people) has been ravaged mightily by the nasty Wolf (that would be Goldman and Sachs). It all seems so dire, so unfair – but wait, who is that rushing to her defense? It is the brave Woodsman (that would be congress), he has come rushing in – axe in hand. The Wolf snarls and snaps but he is no match for our stalwart hero. The fight is fierce and much noise is being made. But in the end, we know our brave Woodsman will avenge Little Red Riding Hood and all fear and injustice will sink into a glorious sunset as the curtain closes.

This is the reality of the hearings. It is very gratifying to hear our anger voiced so clearly on TV for all to hear. Oh the snide remarks, the dripping contempt of Goldman crushed under the angry demands and bone chilling threats of our local congressman. This will go on for several days. In this manner our little spectacle more closely resembles the Roman spectacles held for the very same purpose as these hearings. Namely, to calm and entertain the populace while a handful of men gets back to running the nation.

Unfortunately for us, the Roman analogy does not hold very close beyond that however. For at least the Roman citizen, got to see real blood in exchange for their liberty. We however will have to muddle through with our humble vaudeville. It will have to suffice because it is all we are being offered.

These hearings will come and go having accomplished nothing. No more than the bailout hearings prevented further bailouts, abuse of bailouts or the banana republic corruption of bonuses paid from bailout funds. By all accounts the reform bill in congress will, like health care before it, be a giant gift bag to the finance industry. In exchange for meaningless paper reforms Goldman and others will keep access to the federal paper money mill. No banks will be broken, no trading outlawed. Sure some specific types of securities will come under tighter control – but only in areas where Goldman has so overfished the waters that no fish is likely to bite again for years.

The hearings will end, the limelight will dim. Congress and Goldman will retire for the weekend and remove the dirt and grime of public performance sharing drinks together on the Goldman dime. The “reform” bill will pass. The stock market will rise in anticipation of higher profits. Goldman will begin to reap its toxic returns from the debt crisis it fueled in Europe. Taxpayers will feel that their ongoing pain and abuse has been made meaningful. All will be well and happy – for a while.

Tick Tock

Wednesday, April 28, 2010

Islam's Prophet and America's Profit - two radical fundamentalisms

To many people - wise and foolish, it seems that America is locked in a struggle with Islam or at the very least with the radical elements of Islam. The question is whether this conflict will be limited in time and intensity or whether it will erupt into an all out battle to the death.

I do not propose to enter into that debate. I would simply like to point out that there is a direct correlation between the likelihood of struggle and the degree of radical fundamentalism. When you look at the Muslim citizens of American it is hard to find a radical majority. Most Muslim Americans are proud to be American and vigorously self police their community for signs of terrorism. Show a group of Islamic parents walking their children to mosque and you will be hard pressed to get the average American to declare them mortal enemies.

However, present that same American an image of raging Pakistani youth burning an American flag or stoning rape victims to death and you will quickly reach a consensus that “those” people are dangerous and must be confronted totally.
So we have established that a radical fundamentalist response is met much more forcefully than a more measured one. The higher the degree of fundamentalist fervor the higher the antagonism towards the group. We see that relationship between Islam and the American public. Let is now turn the mirror on ourselves. Do we present any degree of radical fundamentalism to the Muslim world?

Some might argue that we do offer a fundamental Christian view to the world. I do not think that is true enough to be a general statement. Some may argue that we present a fundamentally western view. Now, that is closer to truth and frankly I am perfectly satisfied to be tied to the western principles of the enlightenment.

However, I would argue that America may adhere to enlightened principles in law and society but they hold closer to an even higher god. That god is capitalism. Not just capitalism but a radical fundamental view of capitalism that stands at the very core of our values. No cry of heresy is hurled as loudly as that of being against the free market. No profanity can reach the staining power of socialist.  No violation of morality or social justice is unredeemd by a healthy income statement. Yet we do not see ourselves as radical nor fundamental.

America complains about the insanity of the Muslim extremist who follows the word of the Prophet Mohammed to any excess. Yet American worships our own prophet – Profit and we are every bit as radical in its defense – we destroy environments, cultures, entire civilizations in the holy name of Profit. We parade 12 year old girls in lingerie ads in the name of Profit. We send entire communities into poverty and despair when we ship their jobs overseas in the name of Profit. Profit is holy and Profit is an answer unto itself.

We build temples to Profit - our very homes are measured by how much profit they represent. Our careers are measured in Profit. We earnestly declare that no scientist would want to cure cancer if it did not end in Profit. Our coal is mined and cars built with a keen balance being kept between the cost of funerals and bottom line Profit. Liberal arts have withered to ghost presences on our campus because they yield no Profit. Profit – holy Profit – it is the ghost in the machine of American culture.

The Islamic world values sanctity and order and worships their Prophet. America values capitalism and freedom and worships our Profit. Two zealots locked in a battle of heresies do not bode well for compromise. We need to realize how our own radicalism threatens their world before we expect them to abandon their own fundamentalism. One irrational radical fundamental fanaticism deserves another.  If there is any hope of coexistence, we need to recognize our own orthodoxies.

Monday, April 26, 2010

In Goldman Sachs They Trusted - 1929 and 2008 Deja Vu

“In Goldman we trust” - Kenneth Galbraith warned us 55 years ago

In 1955 Kenneth Galbraith published what is considered the definitive book on the great depression called with all the wit and imagination of an economist – “The Great Depression”  What it may have lacked in marketing edge it made up for in content and insight. It has been held to the test of time and emerged today as an essential work on the economic meltdown of the 1930s.

However, a recent reread showed how it can also be seen as a prescient warning. You might want to be sitting down for this one. Chapter 3 of his historic book is titled “In Goldman Sachs We Trust” In it; Galbraith explains how the firm went from being one of the newest kids on the block to the leading promoter of closed end stock funds prior to the great crash.

Essentially these closed end funds were exactly the same as the ones operated today by Goldman and reputable firms throughout the world. A fixed number of shares in the closed end fund are sold to raise capital. This money is used to invest in other stocks. The manager of the fund is presumed to be able to outperform the market and from this performance the fund will earn a profit in excess of the market.

These funds were essentially the first derivatives, since they drew their value not from their own effort but by the underlying value of the stocks they bought. But, the difference is that in 1928 Goldman basically turned the idea of closed end funds into a pyramid ponzi scheme. They issued Goldman Sachs Trading Company in December 1928. One million shares were issued at $100 a share to capitalize the firm at $100, 000, 00. Then 90% of the stock was sold to the public. Within 2 months Goldman bought back 560,724 shares of its own stock, this created huge market demand and the stock prices soared. By the end of the month after sending prices to $222 a share Goldman sold of most of its shares at over 120% profit. Then in 1929, Shenandoah Corporation was created. Its major purpose – to purchase shares of Goldman Sachs Trading Company. Within months they had created the Blue Ridge Corporation. Its major purpose – you guess it – to purchase shares of Shenandoah.

This scam went on until the US economic meltdown in October of 1929. At its peak, this pyramid scheme drove shares of Goldman Sachs Trading Company to over $280 a share. By 1932 when Goldman was being hauled into Congress for a series of investigations the shares were worth a buck and some change. On the stock of the Trading Company alone Goldman Sachs had lost over $565 million dollars. Adjusted for inflation that would be over 7 billion dollars today.

The losses for Shenandoah and Blue Ridge were similar in style and scope. However, this is not the limit to the Goldman touch on the great depression. In their first two years of operation Goldman Sachs issued similar deals with leveraging of up to 99 to 1. These created, merged, bought or managed dozens of the closed end funds. The total cost to the people is billions and billions of dollars beyond calculation.

Goldman was hauled into Congress and all over Washington. They were excoriated and fined. But to no avail. For Goldman showed even way back then how adept it was at creating a profit opportunity – seizing the bulk of the profit – but then astutely letting go before the phony economics caught up with the deal.

Goldman Sachs always leaves someone else holding the bag. In 1929 they did it to millions but most spectacularly to William Crapo Durant. Durant was the founder of General Motors and later became a big player in the stock market. Goldman sold a huge amount of its shares to Durant. By 1936, Durant died bankrupt and living on charity. Goldman Sachs however, had stashed away enough of its money to pay all the fines it was levied and to hire the best admen available to rehabilitate its image.

In 2008 they did it to AIG, Lehman Brothers and the American taxpayer. Now it only awaits for them to suffer whatever pitiful fury their lapdogs in congress are willing to parade out for public consumption. That dealt with, Goldman will do what it has done before. Pay its fines and go on to the next scheme.

At the height of the current meltdown, Michael Robinson, the ex public affairs and policy chief for the SEC said of Goldman: "This is entirely new territory for them," "They are not accustomed to it.” Unfortunately no, it isn’t new to them and yes, they are accustomed to it. The problem is we never learn even from our most vivid histories. “Those who refuse to learn from history are doomed to repeat it” – historian George Santayana.


“The Great Depression” by Kenneth Galbraith 1955

Sunday, April 25, 2010

Sec Watched Porn During Economic Meltdown

Take us the foxes, the little foxes, that spoil the vines: for our vines have tender grapes” Song of Solomon 2.15 KJV

The SEC watchdogs were licking themselves while the foxes from Wall Street raided the American hen house. I think that just about sums up the news story part of this discussion. Revelations have come out that agents of the SEC were spending vast amounts of time in diligent search of porn. One chap fought his way around over 16,000 warnings in his search of porn. Not only were they spending large portions of every workday looking for fresh titillation, but there was a huge increase in this behavior after the 2008 meltdown began.

This is the instructive part of this sordid little tale. I realize job is a nebulous term in government bureaucracy, but weren’t they hired to monitor the financial sector? Why would the amount of time they had for leisure increase during the height of a financial crisis?

The answer that comes to my mind is clear and simple. They stayed even further away from their ostensive jobs as monitors because they were told to do so. So far the SEC has been a toothless, senseless watchdog who sleeps through every violation and excess and only acts when goaded repeatedly into action. Not only were these agents trained to sloth and indolence by years of abiding by the holy covenant between the government regulators and corporations in every sector. The corporations pretend to observe regulations and the regulators pretend to monitor. It is a very polite little dance with precise rules to be sure neither party is ever upset by having reality intrude upon their little cotillion.

I am sure the agents knew from years of learned behavior that it was best to wait. For even when finally roused from slumber the hounds of the SEC tend to bark more and bite less. Any overzealous agent who uncovered problems with a corporation is sure to be accused of damaging a corporation’s free market rights. The sin of offending profit is the ultimate sin against capitalism and can easily cost a fellow his “job”. So naturally, our highly paid SEC agents chose to search for chicks on the internet rather than a fox in the henhouse. Waiting to see if this was another little scandal that would wash away with the next news cycle.

The agents watched more porn in 2008 than in 2006 because they were even less engaged in monitoring during the height of the crisis. But, they were not disengaged from any extraordinary lack of work ethic on their part. They sat idle because the whole recent history of American corporate regulation told them to sit idle until their bosses were given the go ahead for some real investigation, however feeble.

In fact, the scandal did last more than a news cycle and the SEC was finally wakened to some action. But do not be deceived - the SEC is more a doorman for the financial corporations than a guard. They know and the corporations know that they will never be allowed to interfere with business.

This small and fragile fraud case against Goldman Sachs is a perfect example. If it is pursued and a judgment goes against Goldman Sachs the fine levied is likely to be so small in comparison with their profits that is will disappear into the rounding errors on their financial statement. Worse yet, this whole case is just as likely to be set up as a mere morality play in which Goldman sallies forth to demonstrate their diligence and honor as custodians of America’s paper wealth. It is not beyond the corruption of the relationship to believe that this is a setup case to prove that some few – aka Fabrice Tourre did some bad things but the noble folks of Goldman were right on his heels and about to fire him anyway.

Fab will walk away with a scarlet A on his designer suit and walk straight into a limo and onto another high paying job in Finance. He will be a well paid and well looked after scapegoat that clears the Wall Street foxes and lets the SEC hounds return to napping on the porch.

NPR story on porn at the SEC
Second Song of Solomon, King James version of the bible

Friday, April 23, 2010

Goldman Sach's Fabulous Fab Says Let Them Eat Cake

“More and more leverage in the system, The whole building is about to collapse anytime now…Only potential survivor, the fabulous Fab…standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities!!!”

Article 18 of the SEC fraud filing against Goldman Sachs quotes VP Fabrice Tourre in an email to a friend where he pats himself on the back as “fabulous Fab”. Apparently, obscene salary and the sycophancy of an entire Wall Street cult in America was not enough to satisfy his ego. No, “Fab” needed self sastisfaction so much he has to refer to himself as some sort of cartoon super hero? This is just disgusting and it comes from the very top of the “best and brightest” at Wall Street. It is a bold indictment as to how juvenile, artificial and scheming the finance “industry” is.

But not only does “Fab” fawn over his brilliance, he admits in the same sentence that he has no idea what he has created or how to manage it.  Later on in another memo, he exhorts a friend to hurry making deals because “the cdo biz is dead we don’t have a lot of time left.”.  Here in his own words is proof that the people running Wall Street are nothing more than salesmen who hype their product without the slightest real competency. The sales pitch is the thing, the main thing, the only thing. This is the skill we need so desperately that we must pay billions in salary to acquire the “very best”?

Goldman VP Fabulous Fab is the epitome of some carny barker who has created a sales pitch so slick and so confusing that even he can’t follow it any more. He just keeps repeating the pitch and calling in the suckers. Well that is what Wall Street was and what it remains – a glorified carny game where there can be only one winner no matter how many suckers try to play the game.

I hope that this memo has the power to engage and enrage the popular imagination like its predecessors in the past. Classic ditties like “let them eat cake” comes to mind. If this does not awaken American to the people who purposely orchestrated the American meltdown – I simply do not know what will.


SEC Fraud Filing on Goldman Sachs

Wednesday, April 21, 2010

Mr. Rubin and the Definition of Morally Bankrupt

Robert Edward Rubin currently sits on the board of Harvard, Mount Sinai, and Council on Foreign Relations. To put it mildly, he is a big deal. He is the ex chairman of Citicorp, Ex Secretary of the Treasury and of course sine qua non – ex chairman of Goldman Sachs.

He is a key player in both the deregulation run-up to the American financial meltdown and its current incarnation as a circus of bailouts and “gosh, I didn’t know” statements by people alleged to be brilliant and talented. They say you cannot judge a man’s life until he has lived it all. So I will withhold my judgment on his talent. Although he will need a great many “up” years to make up for crashing Citigroup, not to mention his key part in deregulation which led directly to the meltdown of the entire economy.

Robert Rubin spent most of his early life working his way up through Goldman Sachs. He joined in 1966 to work in the area of risk arbitrage. Over the next two decades he climbed the Goldman ranks to become Chairman.

In 1992 he joined the Clinton administration as Secretary of the Treasury. He was a strong advocate for deregulation and globalization. Under his watch the safeguards put in place after the Great Depression were dismantled. Between Robert Rubin and Phil Graham basically all the FDR era regulations were swept aside as part of Rubin’s financial modernization. The key piece – the Glass Steagall Act which created FDIC insurance and strictly separated banking from financial speculation was repealed in 1999.

When Rubin resigned as Bill Clinton’s head of Treasury, Clinton called him the “greatest Secretary of the Treasury since Alexander Hamilton” In fact, Mr. Rubin liked that epithet so much he founded The Hamilton Project. Said project has as it goal: “to help build an economy that benefits more Americans” Lovely mission statement. Recent papers include a call to reduce taxes on corporations, and one declaring the meltdown a “panic” caused by unsophisticated citizens failing to see the real economy. If this is Hamiltonian economics then it single handedly justifies that little trip to the oaks with Aaron Burr.

After leaving the administration, Rubin joined the board of Citigroup in 1999. By 2001 he was named in a scandal over a phone call he made to Moodys to try and prevent them from reducing the debt rating of Enron. Does Enron ring a bell with anyone? Rubin carved out a position in Citigroup as senior advisor and chair of the executive committee. 2007 he stepped into the Chairman’s seat. In 2008 under his direction Citigroup was on the verge of bankruptcy and received 45billion in direct bailout and government guarantees against 300 billion in the sort of leveraged debt Rubin has been touting for years. In that same year, Mr. Rubin received over 17 million dollars in salary and over 33 million in stock options. He resigned in January, 2009.

Having resided over the meltdown of the 3rd largest American bank and profited mightily from it, one would think Mr. Rubin would have the grace to be humble. Far, far from it – he has stated that we need a more educated population to be able to address these issues. He even told congress that as the senior advisor to Citigroup he had no idea – none what so ever, about what they were doing with the very type of “investments” he specialized in while at Goldman.

But the pinnacle of his hubris was surely reached this month while speaking at his very own Hamilton Project forum. On April 20th 2010 he told reporters from the Huffington Post that he had been a supporter of regulation all along. With a straight face he stated that "I thought we should regulate derivatives; I thought so when I was at Goldman Sachs and I thought so afterwards," The Huffington article by Dan Froomkin is terse clear and shocking. Rubin is so glib and so unflustered by his part in the disaster that he makes a concerted effort to prove he was for regulation his entire career. Fortunately, Froomkin smashes that rhetorical edifice with some real world facts. Pointing out that when regulation of derivatives was brought up by the Futures Commission both Rubin and Greenspan called the idea caused "…grave concerns about this action and its possible consequences,"

The story of Robert Rubin’s life is one of influence and applause for his talent and intelligence. But if we balance his losses with his successes the net results would indicate a man whose central idea has been an unmitigated disaster. In a few months or collective reality, all the spun sugar financial empires built up by Rubin and his followers have vanished. Huge profits remain in the hands of a very few, but America as a whole is much diminished.

So, if you can define a man by his history and his works – this is Robert Rubin. He has provided that testimony over 40 years in business and government. My title proposes a link to moral bankruptcy. Here unfortunately Robert Rubin has also defined that term with his words and testimony over the last year.

By the way, on April 18, 2010, speaking on ABC’s “This Week” Clinton said Rubin was wrong to advise deregulation and that he was wrong to accept that advice. That is something we used to call – responsibility, it is an antonym of morally bankrupt.


Huffinton Post – Dan Froomkin

Fortune --- Rubin said part of the problem is that we need a "more educated electorate"

Senate investigation into Enron and Citigroup

Tuesday, April 20, 2010


Rule Britannia – and umm hurrah Germany – Germany really needs a new slogan, the old ones have image issues. In any case, it is a great and abiding relief to see more evidence that popular democracy and enlightenment still exist in the western world.

The BBC has posted an article that brings a real chance of a serious and vigorous investigation into the crimes of Wall Street. UK Prime Minister Gordon Brown hit it right on the head when he called the situation one of “moral bankruptcy”. The German government announced that “After a careful evaluation of the documents we will decide about legal steps” France has yet to make a statement, but that may have something to do with the fact that Societe Nationale – one of their largest banks made billions out of the AIG bailout.

This is a solid indication that somewhere in the world people have a clue to how monstrously harmful the mega banks have become. They are no longer a beneficial tool helping to grow economies. The giant financial corporations have become feudal bandit lords. Just like the petty kingdoms that used to dot the Rhine in Germany and charge “tolls” for passage down every mile of the river they impede real economic progress and simple exist to enrich themselves.

England has already passed a 50% tax on bonuses. Mr. Brown is calling for a special investigation. Hopefully this is an indication that they are serious about this and will pursue the Goldman Sachs hierarchy like the thieves and parasites they are.

The whole BBC article can be read here

Saturday, April 17, 2010

Financial Gimmicks extend to movie futures


I had spoken of it earlier in jest. Now in a surreal moment of utter stupidity, the US has actually approved a futures market based on trading forecasts of movie box office receipts. The Trend exchange as it is to be called was authorized by the U.S. Commodity Futures Trading Commission.  Imagine all your retirement money being placed on a bet that Nicole Kidman can make a hit movie.  To their credit the major Hollywood studios are in opposition.

But, the cretins in charge of American finance are hot to open up a brave new world of gambling disguised as investment. This is unbelievable in any time – but now, on the heels of a world class financial calamity brought about by exactly this kind of overinflated under regulated financial pixy dust.  Their is not a single logical reason to do this and certainly not now in a time of financial chaos.  This idea is even worse than the usual futures trading schemes.

Even I, who hold most of our leaders to be utter imbeciles – find this new market for 2 card monty finance beyond credence. Most of the people running the capital markets in America have the brains and morals of used car salesmen.  I would say they were operating way over their pay grade, but that is clearly a tragic misnomer in their case.  This has all the financial folly of the last disaster of synthetic assets and convaluted market manipulations all rolled up into a shiney new package.

Not that the snake oil salesmen of Wall Street can be held solely to blame. This is also proof that not a single effective measure has been taken to prevent a repeat of the 2008 financial meltdown. Despite noble efforts by Elizabeth Warren and a tiny few other voices in the wind, the government has not done a thing to regulate the travesty that is our investment and capital markets.

I do not know how to respond to this other than to warn anyone with have a brain to go running from securities into whatever market you think may bring you safety. If it means putting your cash under your mattress, then so be it. At the rate we are going, the financial market will become in reality the beanie baby trading floor it already is in concept.

We are on a train to utter ruin and no one is willing to put on the brakes. Next stop – the American meltdown.

Friday, April 16, 2010


I never thought I would see it, but it has happened. The SEC has filed civil fraud charges against Goldman Sachs. Today, April 16, 2010 the government has made a solid first step towards bringing the cretins and thieves of Wall Street to justice. Goldman is one of the key players in the American meltdown and they have been totally immune to justice so far.

Filing the 22 page complaint in the Southern New York US District Court, the SEC has charged both the company and specifically one of its vice presidents with fraud. The particular fraud in question scammed over a billion dollars from investors. The vice president charged is Fabrice Tourre. He was in charge of an operation in which Goldman allowed a 3rd party hedge fund – Paulson and Co, to mislead investors.

In exchange for a fee of 15million Goldman allowed Paulson to place tottering investments for which it held credit default insurance into a basket of securities being sold to the public as solid and backed by the good will of Paulson and Goldman Sachs. All the time they were selling these investments as sound and well connected they were buying up insurance positions which would net them huge profits when the investments collapsed. Make no mistake, the investments were going to fail – that is the very point of their creation. Paulson made sure the bundled securities were packed with low grade mortgages on the verge of collapse. It was like selling a house with walls made of matches, telling the buyer that it was safe and sound and then taking out a fire policy.

In fact, the fund was designed from the very beginning to collapse so that Paulson and Co. could cash in their insurance. As the Director of SEC enforcement said: “The product was new and complex but the deception and conflicts are old and simple” It was a total scam from beginning to end and it cost investors over a billion dollars. Of course this is just the tip of the iceberg and Goldman Sachs will mobilize all its lawyers and lobbyist to defeat this indictment. Already the corporate shills in the media are calling this political showboating by the SEC. But, however improbable – it is still a sign of hope and I wanted to bask in that light however brief it may be.

This is a sign that the SEC Chair Mary Shapiro is still struggling to bring some justice to this scandal. She and most especially TARP Congressional Oversight Committee chair Elizabeth Warren have been dim beacons of hope in this latest financial debacle. I fear this may just be a little bone tossed to the masses as a show of enforcement. But, perhaps integrity may yet prevail and bring at least some justice to this part of the American meltdown.

Thursday, April 15, 2010

The Manipulation of Economic Data – Part 1: Unemployment

One of the very few bipartisan efforts that our government has managed in the last couple of decades has been the manipulation of economic data. Starting back in the great old 80s the government began to alter the way data was collected and presented. This ability to alter data was amazingly easy in the over thought and under tested environment of government statistics. Better still, it was effective and useful. The Technocrats could solve problems for the politicians by simply redefining them out of existence. It was a perfect tool to mask reality as we headed down the American meltdown.

This rampant manipulation of data was so useful that it has spread to almost every aspect of current government data. I will run through the highlights of current Unemployment data and how it has been multiplied and massaged to create confusion and delusion. First there was the multiplication of “the unemployment number” into 6 unemployment numbers – U1 through U6.

• U1: Percentage of labor force unemployed 15 weeks or longer.

• U2: Percentage of labor force who lost jobs or completed temporary work.

• U3: Official Unemployment Rate – percent of people unemployed AND actively seeking work

• U4: U3 + "discouraged workers"- those who have stopped looking for work

• U5: U4 + "marginal workers" - those who are working at marginal jobs out of their field

• U6: U5 + Part time workers who want full time, but cannot due to economic reasons

In the great depression when we said unemployment was 24% we were talking U6 type of numbers. Not exactly U6 because in the 1920s and 30s we did not yet have data sets U3 and U6. It is not exactly the same – but close enough. In todays press releases, when the government says unemployment is 9% they are talking U3 numbers. The change from U4 to U3 happened in the Clinton Administration and has been happily followed by every president after. Recent tweaks have defined U3 to be more closely tied to unemployment benefits. That is, you are only counted towards unemployment figures so long as you are drawing unemployment

It is really quite brilliant. How to lower Unemployment? Create jobs or solve economic inequality – invest in real infrastructure? Heck no, just redefine your terms. So, now, you vanish from the unemployment report if you exhaust your benefits, take a crappy underpaid job or take in even one hour of part time employment. Now that is a solution Democrats and Republicans can agree on – and they have.

The official U3 rate for March 2010 is 9.7%. But, now we know this does not include over 11 million who work at low paying jobs they took to put food on the table. Nor does it counts over 2 million people who have lost benefits, have no job and have given up looking for one.

So U6 includes everyone who is dislocated by economic conditions. What is our official U6 rate? Well, that would be around 16.9%. You have to dig through pages of spun sugar to get to it on the Department of Labor reports. But really, aren’t you happier with a 10% unemployment rate? No need to trouble yourself with unpleasant facts. Just listen to the mainstream media and that is all you will ever hear. Rarely if ever do they even mention the existence of more than one unemployment figure. Whether that is a sign of their limited intelligence or an indication of complicity is an unanswered question. What we do know is that hiding more realistic unemployment data is a great convenience to the government and it is part of a larger manipulation of data. It is also a sure sign that the great American meltdown is proceeding apace.

Monday, April 12, 2010

72 percent of Corporations pay zero taxes - so middle class has to make up the difference.

Busy, preparing your tax return for the April 15th deadline? Well, not to put a big burden on you but you are going to need to cough up around a little more. Probably something around $66,000,000,000 extra for the middle class to make up for the corporations that pay no taxes. That is the amount of taxes that 25% of US corporations will not pay on the 1,100,000,000,000 they made last year.

A GAO (government accounting office) report shows that 72 percent of corporations paid no Federal taxes. The Chamber of Commerce defends this by stating that many of those corporations did not earn any income. Well, perhaps after using double accounting methods for inventory and playing other clever games with the books some corporations may be able to show zero income on paper. I will simply accept that very contrived argument for now. Fine, some corporations generated no profit.

Ok, then, let us examine how the really profitable corporations fared. Let’s look at companies worth over 250 million dollars and reporting over 50 million in revenues. These companies reported incomes from 50 million to 378,799 million. Even among these mega corporations over 25% paid zero tax.

Those paying zero taxes this year include GE who had $10.4 billion in pre-tax income. Bank of America with over $4.4 billion in income got a handy little tax credit of 1.9 billion. Exxon paid a whopping $15 billion in taxes to foreign governments, but not a penny to the US. Much maligned Wal-Mart on the other hand paid a healthy 34% of its $20.9 pre-tax income for a total tax of over $7.1 billion. They stand out almost alone of the top 25 corporations as having paid a fair share of taxes.

Oh and before you shrug off any of the 72 percent or 25 percent numbers as acceptable, let me point out one thing. Those numbers refer to corporations who paid ZERO taxes as in $0.00 dollars. If a company paid any amount over zero then they were not included. The GAO did not include any level of taxation between Zero and everything else. I suspect because the number would be too shocking for simple minded citizens to handle.

Well, now you may return to your tax return. It’s up to you to fund the government – because no one else is doing it. Remember it’s not what your country can do for you – it’s what it can do for Citicorp.

Friday, April 9, 2010


As if the normal abuses of Massey Energy Corporation and its ghoulish thug of a CEO were not horrid enough.  Now, their feudal arrogance has become openly disdainful of social or legal restraint. At first, I viewed the Upper Big Branch mine disaster as yet another sign of the American meltdown.  Old rotting infrastructure literally collapsing under its own neglect.  But, the April 5 coal mine disaster has led the coal lords on to new levels of hubris.

They have become used to the cowed serfs of Montcoal meekly accepting a press release and a check in exchange for the body of a loved one.  In their arrogance, they forgot that some of us are not yet under their thumb.  Some pockets of free thought remain.  We are not yet all so beaten down and blackmailed by the deadly choice between unjust work or watching our family starve. Some of us can still think clearly and are not yet afraid to raise our voice. 
Not one sign of shame has been shown. In fact, I have seen no act of contrition however tiny on the part of the Massey feudal lords. Far from accepting any share of blame, they are busy pointing out how blameless they are. How in fact, they are as much the victim here as those crushed and defiled bodies laying miles beneath the feet of their grieving families. 

Fortunately, Massey can blow the top off another mountain and increase production.  The coal industry uses the  equivalent of one Hiroshima atomic bomb a week in its campaign to destroy the oldest moutain range on earth in the name of profit.  Since mountain top removal already has massively reduced the need for humans the loss of a few miners will be no loss to the corporate bottom line.  However, the children of Montcoal will not find much comfort in such debits and credits.  

Forget, the shameful excuses that CEO Don Blankenship is tossing around. Oh, ok, so if we subtract this and divide that, we get to a number where you were only committing one violation a day. He smugly asserts that since one a day is the industry average, he and his corporation are without blame.

Well ok, you monster, I’ll accept your math. So your company is not worse than the average. Here sir is what that says to me. I want to assert that even if we believe Blankenship’s math, that one violation a day in fact proves that not only is he and his company at fault, but the entire coal industry is.

Why haven’t the coal corporations instituted effective safety measures – too costly? No, I can find no record of a coal mining corporation filing for bankruptcy due to insufficient profit. Now, I realize some subsidiaries have filed bankruptcy. But they did so only to shed the company’s responsibilities and avoid environmental and pension costs.

Has the government pushed too fast for reform and the companies cannot keep up? No, this is a ludicrous assertion actually. The US regulatory agencies responsible for mine safety have constantly watered down regulation under lobbying pressure. Not to mention the fact that every single regulation that has made its way into legislation has been thoroughly contested every step of the way in a review system that offers companies more chances to appeal than a murder suspect gets.

No, only one answer remains as to why coal companies have not instituted safety measures. That is cold capitalist calculation of profit versus cost. The mines simply look at their ongoing expenses on the one hand. These consist of lobbying and bribery expenses, court costs of legal actions and then the clean up by finally paying for some funerals and a public relations firm. These current costs are weighed in the profit and loss scale against the cost of instituting effective safety measures. The scale almost always points to the side with the most bodies in it. The honest fact is that dead miners cost less than safety.

Is it not time we stopped trading needless human tragedy for improved quarterly profit reports. If one violation of basic safety regulations a day is the industry norm, then the entire industry is immoral. I think simple investigation will also show them to be criminal. Mr. Blankeship himself is in fact already on record with several violations of election law in which he was busy buying judges and regulatory favor.  Okay, so we accept that the whole industry is corrupt and immoral - what is my answer?

Nationalize the entire industry. No compensation, no buyout - seize them wholesale on the basis of gross neglect of human rights, our environment and flagrant disregard of the law. They deserve no money for their property because the backlog of accumulated abuse will cost us billions to correct. Break the companies up into individual mine holdings that are owned 75% by the miners and 25% by the Government. Use the government’s share of profits to ensure proper remediation of the safety issues left unfixed over these decades of coal lords and king profit. These companies have been arrogantly disregarding regulation, law and morality for years. End it now.

This is 10 minutes that should help you decide should you be wavering Blankeship nightline Expose

Tuesday, April 6, 2010

Coal mine disaster and why the corporation will not suffer

Finally, all those years of watching crime based TV shows has paid off.  I was reading the news about the coal mine disaster in West Virgina and the fact that the mine has had 57 safety violations in just the last month.  They said it was infamous Massey Coal.  Then i saw a post calling it Peformance Coal Company. Then it hit me.  Remember, the first rule of setting up a criminal enterprise is make sure you have a fall guy ready in case something goes wrong.

The latest coal mine disaster is as familiar as all those that have come before it. It will be met with great dismay and sympathy by the American public, the coal corporation will suffer no meaningful penalty, and the final sad certainty is that the miners will return to equally unsafe mines as soon as the last funeral is over. They will return because they have no other choice. The miner workers are as close to serfs and it is possible to get. They are tied to the mines by poverty. They have to choose between two horns of the same dilemma. Unfair working conditions in the mines or crushing poverty outside of the mines. The coal companies have spent decades perfecting these methods and they show no signs of changing. 

This is a dismal situation and there is no quick answer to the fundamental injustice of paying people to put their lives at stake needlessly or watch their families starve. However, there is a solution to the coal companies avoiding the consequences of their greed over and over. That is to make the corporations pay for their violations and not hide behind a shield of corporate subsidiaries. They shuffle assets and cash in one company and liabilities and debt in another. Then allow the loser company to file bankruptcy. Voila – no debt, no fines, and no cost to correct the environmental disasters you create and heck if you’re really good, no reason to pay pensions you promised.

Massey energy and its numerous puppet corporations are experts at this shell game. Massey is one of the most blatant offenders in the coal industry. They almost take pride in their obstructionism to reform, breaking of unions and flaunting of regulations. The CEO of Massey told a CBS news crew that if they did not want to be shot they had better not take any pictures. But the best thing Massey energy has done is to learn how to play the subsidiary and spin off game. 

You may have heard this mine disaster as being at a Massey mine. But no, no it’s not really a Massey mine it belongs to one of their zombie subsidiaries –Performance Coal Company. The pattern goes something like this. Once a mine has operated long enough to need massive upgrades to maintain safety and environmental standards, the mine is spun off into an “independent” corporation. As long as the mine is profitable, the phony company can shift cash back to the mother corporation by dozens of ways – most perfectly legal. But, the minute there is a disaster, wham Massey? Who is Massey, we are Performance mining. Of course, the shadow company does not have deep pockets and so any fines or cleanup costs are simply swept away with a convenient bankruptcy. 

The same thing happens when the mine plays out and the company is facing the cost of cleaning up all the mess like it promised to do in its mining applications. Of course, they do not spend tens or even hundred millions of dollars to honor their legal obligations when a few million will get them a comfortable bankruptcy settlement. Massey and the coal industry are famous for this. But in truth, it is a common corporate trick. The phosphate mines of central Florida have done the same things over and over. Somehow all the dead mines, devastated land, and huge lakes of radioactive toxic sludge end up on the books of a minor corporation. The billions of dollars of profit however are safe in some offshore account with the major corporation de jour. 

I really don’t have the slightest hope that our corporate purchased legislature will do anything to fix this. But I wanted to explain it to anyone willing to listen. We live in a world of corporate corruption and it has real consequences. Not just the tops of 500 mountains blown away to maximize profit, not the valleys and streams choked with debris. Those are terrible irrevocable costs. But other costs abide, men blown to bits in shoddy mines and their families choked with grief and facing a life without income, without hope and without family. 

Living simply does not mean living blindly and this kind of economic injustice and wage slavery is increasing everyday in the great American meltdown.