Third World America

by Arianna Huffington

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

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

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

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

  In an eerie echo, in the wake of the Deepwater Horizon disaster, the Wall Street Journal described the Minerals Management Service (MMS), the government agency that oversees offshore drilling, this way: it “doesn’t write or implement most safety regulations, having gradually shifted such responsibilities to the oil industry itself”; it “seldom referred safety or environmental violations to the Justice Department for criminal prosecution, even when it should have done so”; and it “got out of the business of telling companies what training was necessary for workers involved in keeping wells from gushing out of control.”24 Florida senator Bill Nelson summed it up: “If MMS wasn’t asleep at the wheel, it sure was letting Big Oil do most of the driving.”25 Chris Oynes, the Interior Department’s top official overseeing offshore oil and gas drilling, announced his retirement shortly after the disastrous explosion, and Elizabeth Birnbaum, the head of MMS, was forced out thirty-seven days after the spill began—just another pair of resignations that came too late to make a difference.26, 27

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

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

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

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

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

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

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

  Massey offers a textbook—and tragic—example of how this works. After the 2006 Sago mine disaster killed twelve miners in West Virginia, mining regulations were enacted that called for a company with a “pattern of violations” to be subject to a much greater level of scrutiny.36

  If you’re looking for the poster child for the phrase “pattern of violations,” it’s Massey Energy. In 2009, its Upper Big Branch mine was ordered to be temporarily closed more than sixty times.37 That same year, the mine was cited for 515 violations.38 In 2010, by the time of the explosion, it had already received another 124 violations.39 What’s more, in the ten years before the Upper Big Branch explosion, twenty people had been killed at mines run by Massey.40

  So how did Massey escape greater oversight following its pattern of violations? It turns out that a loophole written into the law says that if a company contests a violation, it can’t count toward the establishment of a pattern while the matter is being contested.41 At the time of the explosion, Massey was contesting 352 violations at the Upper Big Branch mine alone.42

  According to another loophole in the law, a company can delay paying a fine while it contests the violation.43 The result? Only $8 million of $113 million in penalties levied against mining companies since April 2007 had been paid by April 2010—around 7 percent. To people like Don Blankenship—or any big bank CEO, for that matter—that kind of money is seen simply as the cost of doing business; it’s factored into the bottom line, like bribes are in the Third World.44

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

  The piece of equipment that the industry resisted because it was too costly, known as an acoustic trigger, runs about $500,000.47 The replacement value of the Deepwater Horizon platform, which that $500,000 trigger might have saved, is about $560 million—to say nothing of the untold billions the disaster will cost the company and the entire Gulf region, and the irreplaceable human lives lost when the oil rig exploded.48

  As for fines for safety violations levied by the Minerals Management Service, between 1998 and 2007, BP racked up a dozen safety violations but paid less than $580,000 in penalties—an infinitesimal figure for a company that made $5.6 billion in profits in just the first quarter of 2010.49, 50

  Even after the Gulf catastrophe, oil companies were handled with a velvet glove.51 According to the New York Times, in the five weeks after the Deepwater Horizon blew up and millions of gallons of oil came gushing out, “federal regulators … granted at least 19 environmental waivers for gulf drilling projects and at least 17 drilling permits.” And, wouldn’t you know—one of the exempted projects was run by BP.52

  I have no doubt that new regulations will be written in respons
e to these latest oil and mining disasters, just as we have new financial regulations in response to the financial disaster. But by the time these regulations make their way through Congress, the lobbyists will make sure that loopholes are part of the deal—and that the American people are on the losing side of the trade once again.

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

  FOXES GUARDING THE HENHOUSE

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

  That’s something else that the mining, oil, and financial industries share: the revolving door between regulators and those they’re supposed to be regulating. The names of the Wall Streeters who have moved into positions of power in Washington are familiar: Hank Paulson, Robert Rubin, Josh Bolten, Neel Kashkari, Mark Patterson—and that’s just from Goldman Sachs.54

  But the revolving door between Wall Street and Washington goes far beyond these marquee names. The finance industry has 70 former members of Congress and over 900 former federal employees on its lobbying payroll.55 This includes 33 chiefs of staff, 54 staffers of the House Financial Services Committee and Senate Banking Committee (or a current member of those committees), and 28 legislative directors.56 Five of Senate Banking Committee chair Chris Dodd’s former staffers are now working as banking lobbyists, as are eight former staffers for Senate Banking Committee heavyweights Richard Shelby and Chuck Schumer.57 Of course, the revolving door spins both ways: 18 percent of current House Financial Services committee staffers used to work on K Street.58

  On the mining front, former Massey chief operating officer Stanley Suboleski was appointed to be a commissioner of the Federal Mine Safety and Health Review Commission in 2003, and four years later was nominated to run the U.S. Department of Energy’s Office of Fossil Energy.59 At the time of the Upper Big Branch accident he was back on Massey’s board.60 And President Bush named Massey executive Richard Stickler to head the Mine Safety and Health Administration in 2006.61 Stickler had such a lousy safety record at the companies he’d run, his nomination was twice rejected by senators from both parties, forcing Bush to sneak him in the back door with a recess appointment.62 In other words, the guy Bush tapped to protect miners was precisely the kind of executive the head of the MSHA is supposed to protect miners from.

  Picking foxes to guard the henhouse was standard operating procedure during the Bush years, when appointments to federal regulatory agencies were often used as a payback mechanism for rewarding major political donors, with industry hacks getting key government positions not because they were the best people to protect the public interest but because they were willing to protect the very industries they were meant to supervise.

  That’s what happened when Bush put Edwin Foulke, a lawyer with a long history of open hostility to health and safety regulations, in charge of the Occupational Safety and Health Administration (OSHA), the agency meant to oversee workplace safety.63 Earlier in his career, while serving as chairman of the federal agency that hears appeals from companies cited by OSHA, Foulke led a successful effort to weaken OSHA’s enforcement power.64 With Foulke in charge of his former target, OSHA, not surprisingly, issued fewer significant standards than at any time in its history.

  Then there was Bush’s choice of Mary Sheila Gall to head the Consumer Product Safety Commission, despite her tendency to blame consumers rather than manufacturers when defective products injured or killed.65 In her ten years on the commission, Gall voted against regulating baby walkers, infant bath seats, flammable pajamas, and children’s bunk beds.66 She even adopted a “Let them eat marbles” stance on the need for toy labeling, voting against choke-hazard warnings on marbles, small balls, and balloons.67 Consumers, she argued, are aware of “the well-known hazard of very young children putting marbles in their mouths.”

  In other words, if a kid chokes on a small toy, it’s because the parent is defective, not the product. And while I’m all for slapping warnings on defective parents, Gall’s attitude dishonors the lives of the twenty thousand people, many of them children, who are killed every year by defective products—to say nothing of the close to thirty million people a year who are injured by them.68 Thankfully, the Senate refused to confirm Gall.69 Undeterred, Bush filled the slot with Harold Stratton, a vocal opponent of states pursuing consumer protection cases.70

  The Food and Drug Administration is another agency that has long had an overly cozy relationship with the very companies it is supposed to oversee—in this case, the pharmaceutical industry. This dysfunctional dynamic has proved especially deadly over the years, with numerous drugs pulled off the market after causing deaths and serious injuries to patients.

  Following the money once again, we see that Big Pharma contributed more than $124 million to federal candidates between 2000 and 2008.71 In return, the Bush administration served up FDA commissioners such as Lester Crawford, who was forced to resign after failing to disclose that he owned stock in companies regulated by his agency.72

  And, if you want to see “overly cozy” run amok, look no further than the Minerals Management Service, which, according to government watchdog reports, featured “a culture of substance abuse and promiscuity” wherein government employees did drugs and had sexual relationships with oil and gas industry officials.73 So not only is the fox guarding the henhouse, it’s doing blow and sleeping with the hens. But it’s middle-class Americans who are getting screwed.

  We have a regulatory system in which corporate greed, political timidity, and a culture of cronyism have rendered the public good a quaint afterthought.

  THEY’VE GOT LOW FRIENDS IN HIGH PLACES

  The third leg in the Access Triple Crown is the way corporate America has used its economic clout to cultivate—okay, “buy”—friends in high places. It’s so much easier to get a politician to take your call when you have donated millions to him or used to work in the office next to him. Facebook is great, but the crony capitalism of Washington takes social networking to a whole different level.

  We saw how all those former Senate and House staffers are making a buck by lobbying their former bosses and colleagues on behalf of the big banks looking to gut reform.74 It’s the same thing we saw during the health-care battle when those fighting against reform hired 350 former members of Congress and congressional staffers to influence the debate, including half a dozen former staffers of Senator Max Baucus, the influential chairman of the Senate Finance Committee. Among those lobbying Baucus were two of his former chiefs of staff.75 And among those on his staff being lobbied was Baucus’s chief health adviser, Elizabeth Fowler, who before joining Baucus’s team had been the vice president of public policy for WellPoint, the giant health insurance company.76

  We got an unsettling glimpse of what this kind of cozy setup leads to in the spring of 2009, when the big stimulus bill was being finalized in Congress.77 At the time, there was much public outrage directed at bailed-out companies that continued to pay their executives big bonuses. In response, Senator Chris Dodd inserted a clause in the bill that would have barred bailed-out companies from awarding bonuses. But, somewhere along the way, behind closed doors and without public debate, the Treasury Department insisted that a loophole be added to the bill that would allow AIG to pay out bonuses. Think about that: Even after having been bailed out to the tune of $182 billion, AIG still had the inside juice to get a special favor served up.78

  It’s the same kind of inside juice that allowed Goldman Sachs chairm
an Lloyd Blankfein to have a prime seat at the table during the emergency weekend meetings in September 2008 when Treasury Secretary—and Goldman Sachs alumnus—Hank Paulson was deciding the fate of AIG—a fate that would have a multibillion-dollar impact on Goldman’s bottom line.79, 80

  It’s the same kind of juice that allowed Enron to become a major Washington player during the Bush years—before it became synonymous with corporate mendacity and greed. The crooked firm’s chairman, Kenneth Lay, and his senior management doled out $2.4 million to federal candidates in the 2000 elections and were among George W.’s biggest donors.81 Enron also spent $3.45 million lobbying Congress in 1999 and 2000, all of which helped the outfit push its “deregulation” agenda—which really meant creating enough “wiggle room” to get away with wholesale fraud.82

  “Kenny Boy” Lay was known to boast about his “friends at the White House”—friends who helped him engineer the replacement of the head of the Federal Energy Regulatory Commission, the agency charged with regulating Enron’s core business.83, 84 He also had a lot of input on energy policy at the Bush White House: Vice President Dick Cheney and his staff had six meetings with Enron representatives—including two with Lay—as part of their energy task force.85, 86 The last of those meetings took place six days before Enron was forced to reveal it had vastly overstated its earnings, starting the energy giant’s slide into bankruptcy.87

  Another energy company, Upper Big Branch mine operator Massey Energy, has also realized the investment value of buying friends in high places. Back in 2000, Massey was responsible for a coal slurry spill in Kentucky that was three times larger than the Exxon Valdez oil spill.88 The company very successfully limited the damage—not to the environment, but to its bottom line.89 According to Jack Spadaro, a Mine Safety and Health Administration engineer investigating the spill, once Kentucky senator Mitch McConnell’s wife, Elaine Chao, became secretary of labor—the labor department oversees the MSHA—she put on the brakes.90 Two years after the spill, Massey was assessed a slap-on-the-wrist $5,600 fine. The same year, Massey’s political action committee donated $100,000 to the National Republican Senatorial Committee, which McConnell chaired from 1997 to 2000. Cozy.