Update 12/3/2015: Justice -- of sorts -- was finally delivered as Donald Blankenship, the former Chairman and CEO of Massey Energy, was convicted (with a maximum fine of $250,000 and up to one year in prison) of conspiring to willfully violate mine safety standards at the Upper Branch Mine in West Virginia, where 29 workers died in April 2010. Here's a blog I wrote about it a few months after the disaster.
Officials say it's too soon to pinpoint the exact cause of the tragic explosion at the Upper Big Branch mine in West Virginia that took the lives of 29 miners, but we certainly know enough to identify the root cause. It's the same cause that led to the 2007 Crandall Canyon mine disaster in Utah that killed six miners and three rescue workers. It's the same cause that led to the 2006 Sago mine disaster in West Virginia that killed 12 miners. And it's also the same cause that led to the Lehman Brothers disaster, the Citigroup disaster, the bursting of the housing bubble, and the implosion of our financial system: a badly broken regulatory system.
The loss of life at Upper Big Branch happened in one horrific instant. The economic collapse has not killed people, but it has gradually destroyed millions of lives. Both calamities occurred because elected officials who should have been creating a regulatory system that protects working families instead created a system that protects the corporations it was meant to watch over.
Just look at the ways in which the New York Times describes the regulatory agency that so atrociously failed the Upper Big Branch miners:
- The agency "remains fundamentally weak in several areas, and it does not always use the powers it has."
- "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.
- It shows a "reluctance to flex all of its powers."
Sound familiar? Most of these conditions were the same ones that led to the housing bubble, credit default swaps, toxic derivatives -- and, by extension, the bank bailout, long-term unemployment with no end in sight, and the rapid acceleration of the decline of America's middle class.
The "fundamentally weak" state of America's watchdogs is the deliberate end product of massive amounts of corporate lobbying. In the case of the mining industry, the amount spent by mine owners on lobbyists intent on weakening regulations and widening loopholes has skyrocketed from under $2.5 million in 2003 to $14 million today, with predictable results: profits up; dead miners up.
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 an entire agency, the Mine Safety and Health Administration (MSHA), dedicated to overseeing the mining industry. Indeed, a federal inspector was at the Upper Big Branch mine hours before it blew up.
Similarly, there are myriad financial regulatory agencies. In fact, before the economic meltdown there were dozens of federal regulators dedicated to keeping an eye on the big banks -- in many cases, with offices inside the premises of the banks. Fannie Mae and Freddie Mac had the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Agency dedicated solely to them. And, after Bear Stearns crashed, Tim Geithner's New York Fed had a team of examiners at Lehman Brothers every day. And yet they still missed the economic collapse.
Regulations are "very difficult to comply with," and "so many of the laws" are "nonsensical." Those are the words of Don Blankenship, the CEO of Massey Energy, the company that owns the Upper Big Branch mine and has a grotesque history of safety violations.
In the case of the financial industry, the reason it can't be regulated adequately is because, as Alan Greenspan put it last week in testimony before the Financial Crisis Inquiry Commission, "the complexity is awesome," and regulators "are reaching far beyond [their] capacities."
That is, of course, exactly the way Wall Street designed it. To the financial world "awesome complexity" is a feature, not a bug.
Something else the mining and financial industries share: the revolving door between regulators and those they're supposed to be regulating.
Former Massey COO Stanley Suboleski was appointed to be a commissioner of the Federal Mine Safety and Health Review Commission in 2003 and four years later he was nominated to run the Office of Fossil Energy in the Energy Department. Today, he's back on Massey's board. And Massey exec Richard Stickler was made the head of MSHA by President Bush in 2006. Talk about hiring the foxes to guard the hen house.
Massey has also mastered the D.C. art 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 spill. The company very successfully limited the damage -- not to the environment, but to its bottom line. Once Elaine Chao, Kentucky Senator Mitch McConnell's wife, became Secretary of Labor, which oversees the MSHA, she, according to Jack Spadaro, an MSHA engineer investigating the spill, put on the brakes. Two years later, Massey was assessed a slap-on-the-wrist $5,600 fine. The same year, Massey's PAC donated $100,000 to the National Republican Senatorial Committee, which was chaired by McConnell. And Massey's CEO Don Blankenship has personally donated millions to the campaigns of judges and politicians.
The essence of the story is remarkably similar to what happened in the financial industry over the last 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.
Massey offers a textbook example -- in this case deadly -- of how this works. After the Sago disaster in 2006, mining regulations were enacted that called for a company found to have a "pattern of violations" to be subject to a much greater level of scrutiny.
And if you're looking for the poster child for the phrase "pattern of violations," it's Massey Energy. In 2009, the Upper Big Branch mine was ordered to be temporarily closed over 60 times. That same year, the mine was cited for 515 violations. It has already received another 124 this year. And 48 of the '09 violations were considered serious, as were 10 of this year's. According to Ellen Smith, editor of Mine Safety and Health News, this is far more than any other mining company. What's more, in the ten years before the Upper Big Branch explosion, 20 people had been killed at mines run by Massey.
So how did Massey escape greater oversight for having a pattern of violations? It turns out that a loophole written into the law says that if a company contests a violation, while that violation is being contested it can't count toward the establishment of a pattern. Massey is currently contesting 352 violations at the Upper Big Branch mine alone.
Another loophole in the law says that a company can delay paying a fine if it contests the violation. The result? Only $8 million of $113 million worth of major penalties levied against mining companies since April of 2007 have been paid -- around 7 percent. To people like Don Blankenship, or any big bank CEO, that kind of money is seen as the cost of doing business -- it's factored into the bottom line, like bribes would be in the Third World.
I'm sure there will be new regulations written in response to this latest mining disaster. Just as we're about to get yet another grab-bag of financial regulations. But by the time these regulations make their way through the Congressional sausage grinder, the lobbyists will have added in the loopholes that ensure that the fix is in -- and that the American people get the short end of the stick. Again.
There is no sense of urgency in Washington about making sure these corporations play by the rules. In 2007, after the Utah mining disaster, we got angry, we held hearings, we supposedly fixed things, then we moved on. Three years later, 29 miners die. And the cycle starts again.
In the same way, in 2003, after the Enron and WorldCom disasters, we got angry, we held hearings, we supposedly fixed things, then we moved on. Five years later, we got AIG, Lehman Brothers, Citi, and an economic crisis that devastated -- and continues to devastate -- the lives of millions. Will we just sit back and let the cycle start again?
Disasters -- both mining 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 their lobbyists in Washington.
The lives of hardworking Americans have to take precedence over the bottom line at Massey Energy and on Wall Street.
This isn't a matter of right vs. left. It's a matter of right vs. wrong.