Sunday, January 23, 2011

Strong Regulations Need Strong Regulators

Which brings me to the Republican Party’s perpetual prose about ‘job killing’ regulation. 
So we don’t need financial reform?  Yes it may stunt some financial sector profits, but last time I checked the banks of Canada and Israel, to name a few, are profitable sans bailout; but have we already forgotten the 8.5 million jobs lost just a few years ago in the most recent recession?  I know most Americans have long forgotten about the two S&L disasters decades ago and the fall of Long Term Capital Management (LTCM) in the 1990’s.  But when financial company corporate boards need tutorials on Collateralized Debt Obligations (CDO), a $38million subprime mortgage bond ends up in over 30 debt pools and leads to $280million in losses, when banks are placing its depositors savings at risk as a result of uneducated bets, when financial institutions could pick what agency would regulate their businesses, when banks can create off-balance sheet Structured Investment Vehicles (SIV) to hide risky debt, when investment banks under guidance from fund managers can pick and choose CDO’s and Asset Backed Securities (ABS) so that the fund manager can make a windfall shorting the CDO, when ratings agencies simply rubber stamp securities and bonds without knowing what is really in the vehicle, when….you get the point.
As for our oil and gas industries, one need not look any further than the recent Deepwater Horizon disaster.  The presidential commission investigating the oil spill called on Congress, the Obama administration, and the oil and gas industries to make sweeping changes.  These changes were based on policies and practices in other industries and other oil and gas producing countries.  The panel's recommendations were driven from conclusions including "systemic failure'' and a "culture of complacency'' among the oil industry and government regulators.  The panel included stinging criticisms of the actions and reactions of BP, Transocean and Halliburton, the three primary participants working on the rig.  ‘Systemic failure’ that means the problems are in the DNA of the industry especially when considering these three players are involved in all aspects of the industry.  Just as heinous is the complete absence of regulation and oversight in the natural gas exploration industry where firms like Chesapeake Gas, Exxon, and Halliburton (them again) are free to destroy the environment and physically harm our citizens.  How?  A provision of a law proposed by the Bush administration and passed by Congress in 2005 , aka the Halliburton loophole, stripped the EPA of its ability to regulate "fracking”, the process of blasting under high pressure  millions of gallons of water, sand deep underground  forcing cracks in the shale and freeing natural gas for collection.  Without the EPA to get in their way, the gas industry is left only to be supervised by the cash-strapped, undermanned state agencies.
The solutions to these problems call for stricter regulations and regulators with less cozy relationships with the same industries they are supposed to oversee.  Dedicated regulators like Brooksley Born, Sheila Bair, Prentiss Cox, and Michael Greenberger need to be listened to and supported, not vilified when they uncover improprieties and inconsistencies.

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