Posts filed under “Really, really bad calls”

Missed Opportunity: BP Gulf of Mexico Disaster

One of my regular criticisms of George W. Bush as President was, when presented with an opportunity to achieve greatness, he repeatedly failed to rise to the occasion. Indeed, his presidency can be viewed as a long series of missed opportunities:

“Once in a generation, the stars align for a political leader. There is this perfect moment – too often based on some enormous danger of long-lasting consequences for generations to come . . . the perfect combination of leadership and threat, of challenge and response meet. The leader – imperfect, fallible, yet ready to rise to the occasion – grabs the brass ring.”

That was what I wrote following 9/11. There was a moment to transcend politics. Restructure global alliances, refocus military spending away from its cold war footing, force some sort of Israeli/Palestine deal, wrestle structural US deficits to the ground. Rather than dare the nation to rise to the challenge, to make personal sacrifices for the greater good, to step up to greatness, the country was told to . . . go shopping.

Barack H. Obama seems to be following W’s footsteps. He has failed — twice — to is rise to an occasion of great import. In the words of White House Chief of Staff Rahm Emanuel, he has “wasted a good crisis” — for the  second time. The financial collapse was a grand opportunity to undo three decades of misguided decision-making and radical deregulation. He chose to focus on . . . Health Care.

Now, we have another crisis — the BP Gulf of Mexico disaster. And yet again, we see another missed opportunity. The Oval Office speech last week was just that — a speech, filled with platitudes and mere words. Where was the challenge, the sense of national need, the urgency? It was the same tired energy speech that, as The Daily Show’s Jon Stewart has pointed out, every single president since Nixon has given.

For the greatest orator of his generation, our president appears to be lacking in imagination.

I am not a presidential speechwriter, but if I were, this is what I would have suggested to President Obama that his less than historic, June 15, 2010 Oval Office speech should have looked like:

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“Good evening, my fellow Americans.

On April 20th, an explosion ripped through BP Deepwater Horizon drilling rig, about 40 miles off the coast of Louisiana. It killed 11 people, began pouring oil into the Gulf of Mexico. Estimates of this leak have risen from 1,000 barrels per day a month and a half ago to as much as 100,000 barrels per day. The Gulf of Mexico is now endangered — the food that it produces, its pristine beaches, its travel and tourist destinations are all threatened with despoilation.  This is an environmental catastrophe of unprecedented proportions.

But there is worse news: This tragedy may be the future we are looking at. This may be the first of many such catastrophes we face in the years ahead. It is the result of a series of too many bad decision made by too many people about too many important things. Our corporate partners have made the inexpedient judgment to take on more risk in order to pursue greater profits. We saw this in both the banking sector, the auto industry, and most recently, at energy exploration companies.

Our regulators have become too cozy with their charges. Our Supreme Court somehow has mistakenly come to the conclusion that corporations are equivalent to Human Beings, with the same guarantees to free speech and political participation. We have failed to develop fully explore alternatives to fossil fuels. We have allowed ourselves to become so inured to the benefits of cheap, plentiful energy, that we have ignored their risks and costs.

We are in danger of losing our way, of no longer being a Democracy, and morphing instead into a corporatocracy — a nation of, by and for Corporations

This has gone on for far, far too long.

So tonight, I am proposing 10 sweeping changes for America:

1. Energy R&D: First, we need to recognize that a decade into the 21st century, we are as a nation overwhelmingly wed to 19th century fuel sources. What we need is a fundamental breakthrough in energy technology. Toward that end, I am convening a new “Manhattan Project” — only this time, it is for fundamental research into new forms of Energy. We need more than incremental improvements in solar and battery power, we need a major breakthrough that is the equivalent of the Atomic bomb in its magnitude.

I am requesting Congress Fund a $250 billion dollar Federal research agency to fund fundamental physics and chemistry research — into battery technology, solar efficiency, wind and wave power, thorium nuclear, and all manners of new ideas. The private sector has failed to do this over the past century, so it is up to we the people to get this accomplished.  (If we were able to find $185 billion dollars for AIG, then surely we can find $250B to secure our energy futures).

2. Gas Taxes: Gasoline is cheap and plentiful. This has encouraged us to be incredibly wasteful in our energy choices. We are the only industrialized western nation that has not implemented some form of disincentive to to be so profligate in our fuel consumption. Hence, we will be phasing in Pigou taxes over the next 10 cents per year for the next 10 years for a total of $1.00 per gallon of gasoline by 2010.

The US consumes 16 million barrels of gasoline a day. Automobiles use nearly 10 million of those barrels — about 400,000,000 gallons per day. We want to slow that consumption, and channel the pigou taxes into productive research and mass transit. Speaking of which:

3. Mass Transit: I am implementing a massive overhaul of our national mass transit. We are too inefficient in how much energy we consume merely getting around from place to place. Hi Speed rail between cities, increased rail within the cities, natural gas burning buses, and electric vehicles will become the standard.

4. CAFE Standards: For local driving, we need to also be more efficient. Thus, we will raise our national Corporate Average Fuel Economy (CAFE) standards for automobiles. We were making progress in the 1970s and early 80s, but we got complacent. I am confident that our auto engineers and manufacturers will find a way to deign more efficient vehicles.

We will work closely with those who want to convert our long haul trucking fleet to natural gas. We will figure out how to get this done.

5. Alternative Energy for Homes: I have already established tax credits for making homes more efficient, replacing old furnaces, upgrading insulation and windows. But we can do better. So we will be offering a new set of tax credits for alternative energy sources at the home level. Solar, geothermal, wind will all be subsidized by a federal tax credits for home and multi-unit apartment owners.

6. Upgrade the Grid: Our existing energy grid is antiquated, inefficient and problematic. I am appointing a panel of scientific experts to make recommendations to upgrade the electric grid, transmit power more efficiently, and help to reduce black outs. Further, we need to make the grid more secure from attack from overseas hackers and others who would use our open society to do us harm.

7. Campaign Finance Reform: I have appointed my old colleague, John McCain, as head of a task force on campaign finance reform. Both sides of the aisle have become corrupted by the money in politics. No one knows the campaign finance rules better than John, who has been working on this issue for decades. The time has come for reform, to prevent the banksters and the oil company lobbyists from having their way.

8. Lobbying Rules: The revolving door between regulators and industry, between Congress (and Congressional staffers) and lobbying firms is totally unacceptable. Whether its Toyota and Auto safety regulation, the SEC and Corporate defendants, or BP and mineral and mining agency that supervised them. , it will no longer be tolerated.

Hence, as CEO of the Executive Branch, I am putting a 5 year waiting period before you can leave government employment and take a job with the industry you were regulating. For Congress members and their Congressional staffers, you cannot go into any industry covered by the elected official you worked with. This includes any legislation they worked upon. This moratorium will also be submitted as legislation for Congress to pass, and woe to the lawmaker who votes against it.

9. Corporate Donations:  The Supreme Court’s recent decision in Citizens United v. Federal Election Commission granted “corporate personhood” — it gave corporations the same speech rights as flesh-and-blood human beings. This was an error, and was not what the founders envisioned when they wrote “We the People.” Hence, I have introduced legislation into Congress to reverse that Supreme Court decision.

10. Transparent Disclosure: Finally, we are mandating a completely transparent system of disclosures — for all campaign donations, lobbying activity, and any and all donations to groups that engage in lobbying. You have the right to give money to whatever groups are trying to influence legislation . . . but the people have a right to know what was given to whom and for what purpose. All of this information will be published on publicly available websites.

My past 6 predecessors in this office all made similar promises — but the danger was not acute enough to get the nation to act. The Gulf tragedy has now focused our attention in a way that perhaps never was before. It will require effort, sacrifice, hardship. But it will also create new jobs, develop new industries, and put the United States on firmer footing to be a world leader in energy.

In the end, we will be a better nation for it — stronger, more secure, wealthier — for the sacrifices I am calling upon all of us to make.

Good night, and God bless America.

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That is the speech I would have had the President make. Truly inspiring leaders, when presented with terrible situations, find a way rise to the occasion, to achieve greatness. He missed the last time out. If the mess in the gulf gets appreciably worse, he will have one last opportunity. I hope he doesn’t pass up the chance yet again.

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Previously:
The Tragedy of the Bush Administration (November 2nd, 2004)
http://www.ritholtz.com/blog/2004/11/the-tragedy-of-the-bush-administration/

Tactical Error: Health Care vs Finance Regulatory Reform (September 9th, 2009)
http://www.ritholtz.com/blog/2009/09/finance-reform-vs-health-care-reform/

Category: Bailouts, Energy, Politics, Really, really bad calls, Regulation, War/Defense

What Up with Goldman Sachs?

Via Visual Economics, comes this info-porn on Goldman Sachs: > click for big ass graphic

Category: Corporate Management, Digital Media, Really, really bad calls

Moody’s Downgrades Greece (Also, Kennedy was shot)

On Monday, Moody’s downgraded Greece’s government bond ratings to junk status of Ba1 from A3. As legislators debate new regulation for the financial sector, this action yesterday serves as a reminder to the folks in DC that the current regime of ratings agencies has become an unmitigated disaster. It also raises a simple question: What…Read More

Category: Credit, Really, really bad calls, Regulation

Fannie & Freddie: Chasing Profits, Market Share

Joe Nocera cuts right to the heart of the “Blame Fannie and Freddie” argument in today’s NYT. It is an article well worth your time to read. He looks a the CATO/AEI narrative — that the government forced the GSEs (and the banks through the CRA) to make ill advised loans to people who could…Read More

Category: Bailout Nation, Bailouts, Credit, Real Estate, Really, really bad calls

Volcker: Reconsidering Basic Tenets of Financial Theory

Today’s must read media piece comes from former Fed Chair Paul Volcker, in the NY Review of Books: “Some five years ago, at a conference of the Stanford Institute for Economic Policy Research, I lamented that “the growing imbalances, disequilibria, risks” were giving rise to “circumstances as dangerous and intractable” as any I could recall—intractable…Read More

Category: Bailouts, Credit, Really, really bad calls

Art Laffer: Make Up Your Own Facts Here

To a man whose only tool is a hammer, pretty soon everything begins to look like a nail. I couldn’t help but be reminded of that aphorism as I read the most popular article on WSJ.com yesterday — Tax Hikes and the 2011 Economic Collapse — a screed on the Laffer curve and Supply Side…Read More

Category: Financial Press, Politics, Really, really bad calls

Goldman Sachs Reputation Destruction Tour

WSJ:  A commission probing the financial crisis denounced Goldman Sachs Group Inc., saying the firm first dragged its feet over requests for information then dumped hundreds of millions of pages of documents on the panel. The Financial Crisis Inquiry Commission issued a subpoena to Goldman, demanding that the firm provide a key for identifying customer…Read More

Category: Bailouts, Really, really bad calls

Why the ‘Experts’ Failed to See How Financial Fraud Collapsed the Economy

By James K. Galbraith

The following is the text of a James K. Galbraith’s written statement to members of the Senate Judiciary Committee delivered this May. Original PDF text is here.

Chairman Specter, Ranking Member Graham, Members of the Subcommittee, as a former member of the congressional staff it is a pleasure to submit this statement for your record.

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including “rational expectations,” “market discipline,” and the “efficient markets hypothesis” led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did.

Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word “naughtiness.” This was on the day that the SEC charged Goldman Sachs with fraud.

There are exceptions. A famous 1993 article entitled “Looting: Bankruptcy for Profit,” by George Akerlof and Paul Romer, drew exceptionally on the experience of regulators who understood fraud. The criminologist-economist William K. Black of the University of Missouri-Kansas City is our leading systematic analyst of the relationship between financial crime and financial crisis. Black points out that accounting fraud is a sure thing when you can control the institution engaging in it: “the best way to rob a bank is to own one.” The experience of the Savings and Loan crisis was of businesses taken over for the explicit purpose of stripping them, of bleeding them dry. This was established in court: there were over one thousand felony convictions in the wake of that debacle. Other useful chronicles of modern financial fraud include James Stewart’s Den of Thieves on the Boesky-Milken era and Kurt Eichenwald’s Conspiracy of Fools, on the Enron scandal. Yet a large gap between this history and formal analysis remains.

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Category: Bailouts, Really, really bad calls, Think Tank

The big flaw in the business critique of regulation is not so much that it overstates the costs, but that it understates its benefits — in particular, the benefits of avoiding low-probability events with disastrous consequences. Think of oil spills, mine explosions, financial meltdowns or even global warming. There is a natural tendency of human…Read More

Category: Bailouts, Really, really bad calls, Regulation

BP Deepwater Spill = 4X Worse Than Exxon Valdez

There are a variety of estimates as to the total spillage from the Deepwater Horizon disaster.

As of yesterday, they were all significantly losses worse than the 10.8 million gallons of crude the drunk captain of the Exxon Valdez spilled. The range is 23.2 million gallons by the US government, to the worst case scenario of BP itself at 92.5 million gallons.

And counting.

When this is done, it will dwarf the Valdez in total spillage, economic an d environmental damage.

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Tracking the Oil Spill in the Gulf

click for interactive timeline

Graphic via the NYT

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Source:
Size of Oil Spill Underestimated, Scientists Say
JUSTIN GILLIS
NYT, May 13, 2010
http://www.nytimes.com/2010/05/14/us/14oil.html

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Category: Digital Media, Energy, Really, really bad calls