"In reality, credit pollutants pose the same kind of threat to our economy as chemical toxins do to our environment. Like their chemical counterparts, they tend to concentrate in the weakest and most vulnerable parts of the financial system, and that's where the toxic effects show up first: the subprime mortgage market collapse is essentially the Love Canal of our ongoing risk-pollution disaster." Eric Janszen, Harper's Magazine, February 2008
We're living through two of the most catastrophic ecological disasters in history. BP's spill is wrecking the Gulf's ecosystem. It slaughtered 11 workers and destroyed the livelihoods of thousands in the fishing and tourist industries. And soon, we'll start hearing about the terrible toll exposure to oil-related toxics is taking on the bodies of clean-up workers.
Meanwhile, Wall Street, led by financial giants like Goldman Sachs, JP Morgan Chase, Bank of America and A.I.G., polluted our financial system with toxic assets. The wreckage includes $6 trillion in lost economic value and at least 8 million US jobs destroyed in a matter of months. And like the Gulf spill, the Wall Street catastrophe will have deadly long-term consequences, as hundreds of dislocated workers die prematurely from the economic shock.
The Gulf and Wall Street disasters are oddly parallel in many ways, except one: BP is paying for some of its sins. Wall Street isn't. (And what better evidence than the watered down financial reform bill the Congressional conferees hashed out last night, which gives banks plenty of latitude to keep doing business as usual).
Both calamities were predictable and preventable. BP--and the rest of the oil industry--relies on very risky technology to operate flawlessly under extreme pressure, in deeper and deeper water. According to the New York Times , Transocean commissioned a confidential study of safety records at some 15,000 deep sea wells. In 11 cases, crews "lost control of their wells and then activated blowout preventers to prevent a spill. In only six of those cases were the wells brought under control, leading the researchers to conclude that in actual practice, blowout preventers used by deepwater rigs had a 'failure' rate of 45 percent." In short, a BP-like disaster was inevitable. But the industry and its allies studiously ignored that study and all other evidence of our offshore ticking time bombs. Drill baby drill! Just make sure you get the cash in your pocket before she blows.
Back on dry ground, we had similarly strong evidence that a Wall Street disaster was inevitable. Many thoughtful public and private officials cautioned us that Wall Street had recreated the very conditions that led to the crash in 1929 - financial deregulation plus too much speculative money in the hands of the few. In 1995, Brooksley Born, as chair of the Commodities Futures Trading Commission, warned President Clinton, Alan Greenspan and Congress that the fast-growing Wall Street derivatives casino could collapse at any time, taking the financial system with it. Her reward was to be driven out of government by Alan Greenspan, Robert Rubin and Senator Phil Gramm. The financial industry went into overdrive, creating and selling hundreds of billions of these risky products, which later turned into toxic trash. But till then, let the good times roll...for the elites.
In both the deep sea and on Wall Street, regulation was slack or non-existent. At BP, officials fudged or ignored equipment tests for key failsafe drilling systems. Regulators were clueless at best, corrupt at worst. On Wall Street, the financial ratings agencies pretended the toxic assets smelled like roses. Financial regulators from the Fed on down were not just clueless, but collaborating in the scheme.
If the Wall Street and BP disasters are eerily parallel, consider this connection between the big bankers and the BP spill. Apparently Wall Street analysts didn't like all the extra time and money it took to conduct tests on deepwater rig failsafe devices. In a conference call with investment analysts, Transocean's CEO virtually apologized for the annoying "anomaly" of having to repair blowout preventers. (New York Times, 6/21/10). It reportedly costs $700 a minute to pull up a blowout preventer for repairs. Investors surely didn't want to see that kind of cash wasted on tests that could be avoided with a little guile and regulatory manipulation.
But the many parallels and connections between the Wall Street and Gulf disasters end when it comes to how the government is handling these crises. BP is paying a price for what it has done. Wall Street is being rewarded. (Populist rhetoric aside, the financial reform bill just announced will keep those rewards coming through a myriad of exemptions and loopholes. Too big to fail is here to stay.)
The Obama Administration pressured BP into canceling dividend payments and setting aside a $20 billion victims fund that will be administered by a neutral third party.
Where's Wall Street's victims fund? The one that will help the millions of people who lost their jobs or homes because of the crash? Instead of paying out, Wall Street is getting paid for its sins. After the crash, both the Bush and Obama administrations showered the perpetrators with at least $10 trillion in taxpayer bailouts, guarantees, toxic asset swaps and liquidity programs. The largest financial institutions were permitted, even encouraged, to become even bigger as they gobbled up distressed banks at bargain basement prices. What aid there is for Wall Street's victims comes from us, the taxpayers, in the form of stimulus money.
In the very year in which they destroyed eight million jobs, the finance industry big boys got away with paying themselves $150 billion in bonuses all of which came by way of taxpayer support. In the worst economic year since the Great Depression, the top ten hedge fund managers (who would have earned next to nothing without taxpayer-financed bailouts) awarded themselves an average of $1.8 billion each - that's about $900,000 an hour (not a typo).
Why was Wall Street rewarded for nearly destroying the financial system, while BP is (rightly) being punished for polluting the Gulf and killing workers?
Blame the Brits?The Brits have one answer: BP is British and therefore easy game for American politicians. The idea makes for a nice rhetorical flourish, but I don't think it accounts for much. My guess is that if a volcano of Exxon oil erupted in the Gulf, our response would be roughly the same. (And I sure hope we won't find out any time soon.)
We can see oil but not finance? Another explanation for the double standard is that while Wall Street's financial shenanigans are an invisible abstraction, the Gulf spill is a graphic nightmare - the oil- coated birds, the once pristine marshes covered with goo - not to mention the oil gushing live and in color on your computer screen.
However, losing your job overnight because of a financial collapse is pretty tangible. Watching your nice neighborhood become a shabby ghost town because of mortgage foreclosures and plummeting housing prices is not too subtle either. Knowing that Wall Street dons are rolling in dough again while you're fighting off debt collectors is quite immediate. Seeing your town lay off teachers because the Wall Street-induced crash caused tax revenues to tank is almost as sad as looking at an oil-soaked pelican.
So what's really behind the double standard? Power: bankers have more of it than oil execs. Big Oil just isn't as big as the financial industry anymore.
Look at it this way: Citigroup was too big to fail. BP isn't. If it goes under the markets will not crash. Millions won't lose their jobs. In fact the other oil giants will be only too glad to suck up the business. But when a single major financial entity goes under, the entire economy is at risk.
That immense power gives the financial sector the moxie to cover up its culpability. We know who to blame for the Gulf spill. But how many people know who to blame for the Wall Street crash? The culprits have spent millions to convince us that they are totally innocent. Instead, it's the government's fault for failing to adequately regulate them. Or it's all those hapless Americans buying houses they couldn't really afford, touching off a housing bubble.
BP officials appear red-faced before the congressional committee and admit guilt. But when Goldman Sachs' Lloyd Blankfein gets before Congress, he assures us that he's doing "God's work." He might look innocent, but Blankfein and his Wall Street brethren are guilty as sin for polluting our financial system with toxic assets--and walking away with billions (See The Looting of America for all the evidence you need.)
Politicians know they can get away with slapping BP around. But you better not slap Wall Street--you might upset the markets. God knows we don't want to give Wall Street the jitters and cause a Dow Jones tumble. Let's not risk a run on currencies or any other scary reaction that might endanger our feeble jobless recovery. Taking a knock at BP might lose you some oil industry campaign contributions. But the financial industry is the biggest campaign contributor of all--to both Democrats and Republicans.
Now that Wall Street has collected its bailout billions, it wants the rest of us to tighten our belts. The captains of high finance are demanding that we reduce public debt, which we ran up to bail them out and deal with the mass unemployment they caused. It takes a hell of a lot of nerve. First they crash the system and run away with a fat pocket of cash. They we bail them out and they use the money to pay themselves tens of billions in bonuses. Then they demand that WE clean up our financial act or they won't loan out any money.
And sadly, they're getting away with it. A generation of deregulation and regressive tax policies gave them the keys to the world economy. They now control so much capital that they have the power to veto policiies instantly, just by rapidly moving money around. The porous financial reform bill won't stop them. The too-big-to-fail giants will grow even bigger. Get ready for more financial toxic shock as Wall Street's financial engineers drill through the bill's countless loopholes.
So next time an oil-blackened snowy egret gets you furious at BP, remember to save some righteous indignation for the financial polluters who are picking your pockets.
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.