June 2010

The Regulators are Dead, Long Live the Regulators

by Bill O'Connell on June 28, 2010

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As written about extensively here, government regulators have failed us in so many ways that to continue the practice of putting more control in the hands of government is lunacy.  To wit:

  • The financial crisis, although typically blamed on Wall Street greed, was due in large part to government agencies and programs (Fannie Mae, Freddie Mac, HUD, Community Reinvestment Act, National Homeownership Strategy) that opened the door through which Wall Street followed.
  • The oil spill in the Gulf happened after regulators either signed off on waiver applications from BP or just didn’t enforce the regulations on the books
  • Anywhere from $60 billion to $100 billion is stolen from Medicare/Medicaid every year and our government can’t seem to stop it
  • First time homebuyer tax credit was claimed, to the tune of $9 million, by incarcerated felons.

But the current administration insists that government must get bigger to tackle our nation’s problems and must tax us more to do so.

Senator Chris Dodd and Representative Barney Frank were at the heart of the financial debacle, claiming that Fannie Mae and Freddie Mac were in sound financial shape.  Meanwhile Senator Dodd was getting a sweetheart mortgage from Countrywide as a “Friend of Angelo” Mozillo, the CEO of Countrywide.  Now we are to believe that Senator Dodd and Representative Frank have ridden to the rescue and have crafted the solution we have all been waiting for, just don’t ask about Fannie and Freddie, they aren’t included in this master work.

The Federal Reserve will now have more power to regulate banks, after failing to monitor what was going on at Citibank and having the government step in because they were “too big to fail.”  The Treasury stepped into to bail out some banks and let other financial firms like Lehman Brothers to go under, will now have more power to determine which financial institutions are sound and which ones are not and step in to take control without allowing the bankruptcy courts to get involved.  The SEC which was asleep at the switch, or too busy watching porn on taxpayer purchased computers,  when the Bernie Madoff scam was delivered to them wrapped in a bow, will now have more power to decide how easy it will be to allow union pension funds to place their candidates on boards of directors.

The new legislation, which does nothing really new, runs to 2,000 pages (did you expect something less?) and leaves much of the details to the regulatory agencies themselves to fill in the blanks.  And never to miss an opportunity to slip a new tax into the mix there are $19 billion in new taxes to pay for this new regulatory oversight.

So when regulators fail, the government’s response is not to look at government’s role in creating the original problem, but to blame any private interests and add more regulations that will increase the scope and power of the government, take away your liberties, and do nothing to fix the original problem.  When the next crash comes, and it will, these same folks will say, “oh, dear, how did this happen?”  They will blame any private interests that are anywhere near the problem, absolve government agencies of all blame, and layer on more regulations.

The only way to fix this problem is to make sure these same folks are not around in the future and to cut the government down to size.

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Will Obama Face Another Defeat?

by Bill O'Connell on June 25, 2010

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The news on the economy this morning is not encouraging.  The GDP numbers have been revised downward to an anemic 2.7%.  When asked to identify the Obama administration’s greatest accomplishments so far, one of his ardent supporters identified: 1) ObamaCare and 2) Afghanistan.  Yikes!  60% of the country remains opposed to ObamaCare with 55% supporting its repeal and Afghanistan is in need of a complete overhaul, especially on the civilian side meaning the Ambassador and special envoy Holbrooke.

President Obama now travels to the G8 and G20 meetings this weekend to try to get the rest of the major economies in the world to follow Obama’s leadership into recreating the Great Depression.  The good news is that the other heads of state are not members of the Democratic Party or beholding to Obama.  They are responsible to the citizens of their own countries.  For the European countries, they cannot go on a similar spending binge that Team Obama has embarked upon, if for no other reason than their declining birth rates will not create a new generation of people to hand the bill to.  They see the flashing warning lights that emanated from Greece and are rapidly changing course.

Either President Obama will use his silver tongue to convince the others to open the spending spigot or he will come home with his tail between his legs, his policies discredited worldwide.  Either way it will not be positive for the United States of America.

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Another Government Program Falls Flat

by Bill O'Connell on June 24, 2010

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Did anyone not see this coming?  An article in yesterday’s Wall Street Journal reports that new home sales plunged.  Why?  The government’s meddling tax credit for first time home buyers expired and gee, the trend didn’t continue?  What a surprise.  Meanwhile the government has another program, Making Home Affordable, to help homeowners refinance their home mortgages that they can no longer afford.  Instead of letting the chips fall where they may and have prices find a bottom and adjust, we have the drip-drip-drip torture of these programs and the recession drags on.

New home sales fell 32.7% from April to a record low seasonally adjusted annual rate of 300,000.  Compared to last year the sales fell 18.3%.  In addition the previously reported sales numbers for March and April were adjusted downward.

Here is what we have.  Our government is taking our tax dollars and giving them to people to help them buy a house.  You may be struggling to pay your own mortgage and instead of the government letting you keep more of your own money and perhaps make an extra payment on your own mortgage to lower your outstanding debt or increase spending which would help grow the economy, you are paying for your mortgage and your neighbor’s.  Instead of letting those who can’t afford their mortgage face that reality, the government steps in and drags out the process.  If government got out of the way, then the banks would have the incentive to negotiate in good faith rather than looking for a government bailout.  If a mortgage is salvageable, they should renegotiate with the homeowner and take a small loss rather than a big one.  If the mortgage is not salvageable, then foreclose or short sell it and be done with it.  The housing overhang on the economy would get quickly sorted out and we could return to a more stable housing market.  Get the government out of the way and let us keep our tax dollars.

In 1920-21 there was a steep and serious recession.  This was before the age of government intervention of Hoover, FDR and all who followed.  Businesses were able to cut wages and react to the circumstances in that freer market.  Unemployment peaked at 11.7%, almost 2% higher than we have now, but by the following year it was down to 6.7% and they year after it fell further to 2.4%.  We are a year and a half into the current mess and the current administration seems intent on matching FDR’s record of stretching this out for eight years.  We have a robust economy that can rebound sharply, if the government gets out of the way.  But this government keeps tinkering and the economy keeps bouncing along the bottom.  And let’s not forget fraud.

The Treasury’s Inspector General for Tax Administration, J. Russell George, reported that 19,000 filers for the first time home buyers credit hadn’t purchased a home and there were 74,000 filers had purchased a home but it was not their first.  In additiona there were 53 cases where IRS employees filed “illegal or inappropriate” claims for the credit and today we learn that $9 million was stolen by prisoners who were incarcerated when they filed for the credit.  So don’t worry folks your tax dollars are not only prolonging the recession, but they are being stolen as well.  Feel better about your benevolent government?  Aren’t you glad we live in a country where your government can forcefully take the fruit of your labor and throw it to the wind?

Government that governs least governs best.  Let’s cut the beast down to size.

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Government Fails Again

by Bill O'Connell on June 21, 2010

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An in depth article in the New York Times titled, “Lapses Found in Oversight of Failsafe Device on Oil Rig,” covers at length the problems surrounding the technology and methods employed to prevent the disaster that we see every day on our television screens, newspapers, and the Internet.  It also points to the nearly complete lack of oversight and enforcement by the federal government to protect us.  Politicians like to write legislation and put flowery titles on the same and gather for the cameras for signing ceremonies, but when it comes to the heavy lifting of enforcing the laws put in place they often fall down on the job.

When disaster strikes the typical Washington reaction is to add more regulations that eventually become so complex and contradictory that compliance becomes nearly impossible (e.g., Internal Revenue Code).  In the case of the oil spill in the Gulf the article points out that studies were conducted in 2003, seven years ago, on failure points to prevent the situation we are living with today, but no requirements to put them in place or test them were instituted.

The article focuses on a device called a blind shear, whose purpose is, in the event of an accident like what happened on the Deepwater Horizon, to activate a pair of shear blades to cut the pipe that rises from the well and seal the well shut.  The reliability of single blind shears has only proved to be about 46%.  With this empirical data, new wells are installing two such devices for redundancy and backup.  Such a recommendation was made to the Materials Management Service (the government agency regulating drilling) in 2001, nine years ago, but the MMS took no actions on the recommendation.  In 2003, the MMS received a recommendation that would require the necessary underwater robots and testing of emergency backup systems, but again the MMS, demurred.  The practice has been that the MMS simply took the drilling industries word that they were taking steps to prevent problems.

In 2003, the Deepwater Horizon rig has a problem in a storm that caused the rig to break away from the well it was drilling, the blind shear worked perfectly in that case giving the company a false sense of confidence in the technology.  What happened next is revealing:

The following year, BP opted to remove a layer of redundancy from the blowout preventer. It asked Transocean to replace one of the blowout preventer’s secondary rams with a “test ram” — a device that would save BP money by reducing the time it took to conduct certain well tests. In a joint letter, BP and Transocean executives confirmed that BP was aware that the change “will reduce the built-in redundancy” and raise Transocean’s “risk profile.” – New York Times, 20 June 2010, pA1

Since the MMS did not require two blowout preventers, BP was in the clear to remove one.  Also, consider the term “risk profile,” and think of this in terms of a free market where insurance companies played a role.  If you increased the risk profile and didn’t want to have your policy canceled in its entirety for hiding that fact, the insurance company would no doubt increase BP premiums for the increased “risk profile.”  Since this effort was a cost saving measure, having to pay more in insurance might have changed the equation such that BP would leave things as they were with two blowout preventers.  But the government encouraged deep water drilling, the government put a cap on the amount of damages that a drilling company would have to pay that created a moral hazard, the government ignored recommendations to required greater safety measures and the government was lax in enforcing those regulations it had in place, instead relying on taking the industry’s word that all was well.

On a separate issue regarding the cleanup, in an article in the Wall Street Journal titled, “The President Does a Jones Act,” it states that in the two weeks following the disaster, thirteen countries contacted our government offering assistance with the clean up.  Our government turned the offers down.  As the State Department put it:

“While there is no need right now that the U.S. cannot meet, the U.S. Coast Guard is assessing these offers of assistance to see if there will be something which we will need in the near future.” One month later, many of these offers are still outstanding. – Wall Street Journal, 19 June 2010

The Belgians reportedly have the ships and technology that could clean up the mess in the Gulf in one-third the time than is currently estimated.  All it requires is suspending the Jones Act of 1920.  Bush did it almost immediately in the wake of Hurricane Katrina so that foreign ships could come in and provide temporary housing for the hurricane victims.  Officials in the Obama Administration weakly respond that “no one has asked them yet,” to suspend the Jones Act.  What are they waiting for?  Doesn’t Obama and everyone in his administration to hit the Sunday talk shows tell us that they has been on top of this since day one?  One plausible reason for the hesitation is that it might offend the maritime unions. 

We are continually told by this administration that we need more government expertise telling us how to run our lives.  Surrender your liberties, we’ll take care of you.  I don’t think so.  What do you think?

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The Anti-Business Obama

by Bill O'Connell on June 18, 2010

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President Obama has demonstrated, as much as he would like to deny it, a strong anti-business sentiment.  He has acted in ways that remind one of a Castro or Chavez in that he is doing it in the name of the people against the greedy profiteers.

General Motors and Chrysler were bled dry by union contracts.  Management is culpable for agreeing to those contracts so they don’t get a pass in my view.  But government also piled on with CAFÉ mileage requirements that forced the auto companies to build cars at a loss (because of the union contracts) to meet this standard.  In the midst of the financial crisis the auto companies were running out of cash.  The Obama administration, rather than let them go into bankruptcy, muscles in and turns over major ownership stakes in GM and Chrysler to the unions who are loyal supporters of the Democrat Party, rather than pay bondholders who were entitled to be paid first.

The housing bubble was driven by government policies going back years.  The stated goals of the Clinton administration was to increase home ownership to as many people as possible.  When the bubble burst, the Obama administration forced TARP money on healthy banks who neither needed it nor wanted it.  The reason was to avoid showing who the real basket case banks were.  But these banks were forced by their government to take the money and then the Obama administration created a pay czar to make sure any company that took TARP money, voluntarily or not, could not pay their executives more than Team Obama said they could.

Lax regulation on the Deepwater Horizon platform in the Gulf of Mexico permitted BP to take short cuts that led to disaster.  President Obama is put in an embarrassing position, so he cranks up the Public Relations machine to throw maximum ire upon BP.  He then tries to be a hero by shaking down BP for $20 billion.  BP has never said they would not pay.  BP waived the limit on damages that was set by, you guessed it, the government and has steadfastly said they would make things right.  But President Obama wanted to look like he was actually doing something and by taking $20 billion and putting it under his control it might look like he was.  I agree with many that President Obama did not cause the leak in the Gulf any more than Bush created Hurricane Katrina, but if, as Obama likes to say, the buck stops here, then he is responsible for the lax enforcement by his administration that could have prevented it.

To create jobs this administration created a $787 billion bailout package that did next to nothing to create real jobs.  It was pork to be paid to union members such as teachers, contractors, and not to grow the economy and create sustainable jobs.

If a business that is solidly behind the Obama agenda, like General Electric who owns the NBC and MSNBC cheerleaders, and wants to be a key player in the cap and trade exchanges, this President will treat them kindly.  But if you are an independent business trying to grow, you will be taxed to your eye sockets.

We pride ourselves on being a nation of laws not a nation of men, but since this President has taken office he has a view that he is above the law and can do whatever he feels he needs to do.  It was somewhat surreal to have Congressman Joe Barton, apologize to BP for the shakedown.  No one owes BP an apology but I understand Congressman Barton’s distaste for the administrations boorish behavior.  No one has the right to demand another’s property without due process of law, and that’s what happened.  Perhaps Tony Heywood should be fired for going along with it.

Let’s keep this in mind.  We need BP to continue to be a viable profitable company, so that every last claim can be paid.  If this administration succeeds in driving BP into the ground, guess who will be next in line to pick up the tab?  That’s right, gentle readers, you and me;  the American taxpayers.

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Chris Matthews Cracks

by Bill O'Connell on June 17, 2010

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I guess that getting a tingle running up his leg only lasted so long before he had to give himself another fix.  Since talking about all the successes of the current administration seemed like a hard sell, Mr. Matthews put together a hit piece on the Tea Parties and the right, or as he calls it, the “New Right.”

On his Hardball  program, Matthews “documentary” was titled “The Rise of the New Right.”  In it he tries to paint the Tea Party movement as a fringe group of racists, gun nuts, and generally a group waiting for a reason to break into violence. 

You would be hard pressed to find a more over the top cheerleader for Barack Obama than Chris Matthews.  Matthews took advantage of his position in the media to actively work to get Obama elected, and now he is crestfallen that General Electric, CBS, and Disney/ABC do not control the news like in the good old days.  He openly attacks Fox News and blames the Internet for allowing the Tea Party to do an end run around the main stream media and get their information out.  Matthews, like big government, is smarter than you.  He knows what “news” you need to hear, and will diligently work to keep what you don’t need to know from reaching your eyes and ears.

 The Tea Party that I know has some very basic principles:

  1. Fiscal responsibility
  2. Accountability
  3. Transparency
  4. Free market solutions

 Pretty radical stuff, eh?  In a Rasmussen poll taken earlier this month, 46% of voters say the Tea Party is good for America, while 31% disagree.  Matthews doesn’t tell you this and he makes sure his “documentary” doesn’t provide the information that would let you draw that conclusion.

He reports on the militia movement and specifically mentions the Hutaree militia that plotted to kill a policeman and then those who would attend his funeral.  While constantly tying the Tea Party, and the militia to the Republicans he doesn’t mention that the one person in the Hutaree militia whose political affiliation is known was a Democrat and he voted as such.  Not that there is any linkage between what party one belongs to and being a nut-case, but a fair reporter might mention that to give an honest representation of the story.

Matthews also makes several references to violence against Democrats after the health care vote.  He neglects to say that only one case of violence resulted in an arrest.  That was for an attack against Republican Eric Cantor’s office.  Any one can get a brick and write a note on it quoting one of the Founding Fathers, but until to catch who did it and find out who they really are, you don’t know if it is an extremist on the right, or a Saul Alinsky disciple on the left who wants to discredit the Tea Party people.

Matthews liberally, no pun intended, sprinkles through his story extremists on the right, going back to the 1930s, such as Father Coughlin, but nowhere does he mention extremists on the left.  There is no profile of Louis Farrakhan, Reverend Wright, the Democrats who fought against the Civil Rights Act, while a majority of Republicans supported it.  There is no mention of our government internment of thousands of American citizens of Japanese descent during World War II.

It’s getting closer to the mid-term elections and Matthews doesn’t like seeing everything he has bet his reputation on going down in flames.  So he takes out this “hail Mary” pass to try to turn the tide against the Tea Party and scare people into staying safe with the Democrats.  But this time, the main stream media is not in control.  They can’t craft the message and force feed it to the American public.  Broadcast news and many major newspapers are losing viewers and readership daily, because Toto has pulled the curtain back on the Great and Powerful Oz that was the main stream media and exposed it for what it is, a shill for the Progressive left.

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Regulation vs. Free Markets

by Bill O'Connell on June 16, 2010

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As President Obama used his first Oval Office address to push for another massive government takeover of our economy in the energy sector, it is time to debunk the myth regarding regulation versus free markets.  The Statists like to claim that the financial crisis, the lack of health care, and the disaster in the Gulf are all proof that free markets are evil and we need the benevolent care of our federal government to keep us safe and warm.


 Let’s focus on the current crisis, the oil spill in the Gulf of Mexico.  Here is the government’s role in this mess:

  • Government has banned drilling on land (ANWR) and in shallow water of the coasts of California, Florida, the East Coast, while not only forcing oil companies to go into deeper water, but providing incentives to do so.
  • The same agency of the federal government (MMS) is charged with both collecting royalties from the oil companies and for levying fines on them for violations of regulations.
  • While drilling the Deepwater Horizon well, BP asked the government for several waivers of regulations, and the waivers were granted.
  • After the spill started, Governor Bobby Jindal of Louisiana wanted to build sand berms to block the oil from reaching the cost, but the federal government wanted to study the problem and would not allow him to proceed.
  • Foreign nations such as Norway, Holland, Belgium and Japan offered to provide ships to help clean up the oil in the Gulf, but U.S. law, the Jones Act of 1920, does not allow them to operate in U.S. waters.  When asked why the government didn’t just suspend the Jones Act for this emergency, the government’s lead agent on the ground, Thad Allen, said, “Nobody’s come to me to ask for a waiver.”  When Carol Browner, Obama’s energy advisor was asked why the administration did not lift the Jones Act said, “Nobody has asked us for a waiver.”  Who are they waiting for to ask them?
  • The government placed a cap on the amount of damages that a company would be responsible to pay at $75 million, which creates a moral hazard.  That is, if I can make billions extracting oil and my out of pocket cost if I screw it up is $75 million, I’ll take shortcuts all the way.
  • BP has said they are responsible for the oil spill, they will pay to clean it up, they will pay all legitimate claims resulting from it, even waiving the $75 million cap that the law allows.  So why do our leaders use language like, keeping their boot on the neck of BP and knowing whose ass to kick?  This is starting to cause a backlash in the U.K. which has resulted in comments such as, “The rest of the world is fed up with the parasitic attitude of the U.S.”
  • The government starts making statements that they want BP not to pay a dividend to its shareholders or to put $20 billion into an escrow fund that the government will oversee and spend as they see fit and even to the point of putting BP into receivership.  Who is our President, Hugo Chavez?

 Free Markets

 Let’s look at what would happen in a truly free market:

  • Anyone wishing to drill for oil would be able to reap the profits from the well, but would also have full responsibility for the costs of any and all damages or cleanup.  This may lead to less drilling if the venture is too risky, but that’s how markets work; it is a balance of risk and return.
  • To help offset some of the risk, insurance companies could make a market in providing insurance for a disaster, but rest assured the insurance company would have their personnel inspecting the rigs to make sure all necessary risks were minimized and if not, jacking up the premiums or cancelling the insurance.
  • Government regulation would be simpler in terms of setting standards of what quality of materials could be used, what redundancy must be in place to provide for any failures of primary systems, what levels of emergency equipment must be in place and what contingency plans must be prepared and tested to make sure they work.  If an oil company doesn’t not have adequate insurance, drilling must stop until they do.  If the oil company is out of compliance with a major safety issue, drilling must stop until it is corrected.
  • When going into new areas such as deep water, the technologies to be used should be tested and independently verified to make sure they work as designed under the new conditions, and the insurance industry would be very much interested in participating in such testing, to minimize their risk.
  • In the event of an accident, the government should lend all possible assistance to the oil company to stop the leak and clear the red tape for a cleanup effort and discuss responsibilities after the disaster is under control.

 The end result would be more cautious companies because they could be wiped out if they cut corners.  Insurance companies would have a second set of eyes making sure that things were done properly, because they make money when nothing goes wrong and are indifferent to whether any oil is recovered or not as long as the premiums are paid.  The government would be out of the business of micromanaging the industry; providing incentives and penalties under the same agency; having key personal asking “mother, may I” before taking any steps, and we wouldn’t need a dozen agencies with overlapping responsibility trying to take control.

Free markets have incentives that do work.  What is often complained about is the myth of a free market where the government has placed perverse incentives on companies and then act surprised when said companies follow the incentives.  Their response is always more regulation with more perverse incentives and the cycle repeats.  More government is not the answer, it is the problem.

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The Root Cause of the Problem, Economic Ignorance

by Bill O'Connell on June 9, 2010

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Zogby International conducted a survey to measure how well people understand economics and what their political persuasion was.  The conclusion they came to was clear:  the Left is economically ignorant.  As reported in the Wall Street Journal (Are You Smarter Than a Fifth Grader?) there were eight questions and the multiple choice answers were:  Strongly agree, somewhat agree, somewhat disagree, strongly disagree or are not sure.  Here are the statements:

  1. Mandatory licensing of professional services increases the prices of those services
  2. Overall, the standard of living is higher today than it was 30 years ago
  3. Rent control leads to housing shortages
  4. A company with the largest market share is a monopoly
  5. Third World workers working for American companies overseas are being exploited
  6. Free trade leads to unemployment
  7. Minimum wage laws raise unemployment


Answers of strongly agree and somewhat agree were grouped together for scoring purposes, as were strongly disagree and somewhat disagree.  The survey respondents were then asked their political persuasion:  progressive/very liberal; liberal; moderate; conservative; very conservative; libertarian.  The correct answers to the statements are

  1. Agree
  2. Agree
  3. Agree
  4. Disagree
  5. Disagree
  6. Disagree
  7. Agree


Here is how the respondents performed grouped by political views:

  1. Libertarians 84.3% correct answers
  2. Very conservative 82.4% correct answers
  3. Conservative 77.7% correct answers
  4. Liberals 59.9% correct answers
  5. Progressive/very liberal 32.4% correct


If this were a course in school, liberal, very liberal, and progressive students, would have all failed and in some cases miserably;  conservatives would all have passed by comfortable margins.  The article goes on to say, “The pattern was not an anomaly.”  I think this survey explains an enormous amount about the frustration being felt across America today. 

Other studies have shown that about 60% of Americans describe themselves as conservative.  The current administration is driving hard left at an extraordinary rate and most Americans don’t understand what President Obama and the Democratic Congress are doing or why.  This survey explains it pretty well.  They don’t know what they are doing, or they are expecting outcomes that are economically flawed.  The American people know it and they have been shouting, “STOP!”  But the Democrats blissfully press on in their ignorance and are confused why America is not going along. 

Statists have long assumed and treat their fellow Americans as if we are too stupid to know what they are doing is for our own good.  Well here’s the proof folks that the American people are the ones who know what works and what doesn’t and the only way to fix it is to send all the progressives/very liberal/liberal politicians packing.  If we elect conservatives they will implement what works and what economics proves works, and our country will be on the mend.

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Same Old, Same Old

by Bill O'Connell on June 9, 2010

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I was having a conversation about the current election season with someone and the comment was made about the newcomers to the process.  The comment was about a particular candidate “wanting to start at the top” instead of working their way up.  Why in the world would I want to support a candidate who has spent 20 years being molded into the kind of political hacks that got us into this mess?  Why would I want someone who has been well trained to “go along, to get along?”  I want someone who doesn’t know what “go along to get along,” means.  Someone who believes in citizen legislators, who believe in term limits, who comes from the real world, believes public service is just that, and wants to get involved for a limited amount of time and then go back to their careers.  Why do we need another Robert Byrd, who has been in the Senate for fifty years, or a Strom Thurmond, who served until he was 100 years old?  The first thing on the minds of career politicians is, “how do I get myself re-elected?”  They don’t want to rock the boat, they don’t want to lead, and they want to be as inoffensive as possible so they will be the “safe” choice.

We need to shake things up.  We need fresh ideas.  We need people who are fresh out of the real world where jobs are created, payrolls are met, profits are made, budgets are adhered to and when you take risks, there are consequences.  We have huge problems to solve and most of them mean taking apart the government, and putting it back together as an efficient organization that allows individuals to run their own lives, have as much liberty as possible, and frees them to pursue their own personal happiness.  We need to dump the nanny state and foster personal responsibility.  That means providing for ourselves and our families, and supporting our communities through volunteering, personal giving to charities, and not having the government forcefully take the fruit of our labors and giving it to their special interest friends who work to get them reelected to repeat the process.

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Government Failure in the Gulf

by Bill O'Connell on June 7, 2010

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Not surprisingly, we hear the administration telling us how they have been in charge since day one regarding the BP oil gusher.  But as I have often said before, if there is a major problem in America look for government to be right in the thick of it and this is no exception.

Statists like to blame the free market for such problems and that more government is the answer.  You will also hear them mistakenly say that conservatives don’t want any government involvement in the marketplace.  Conservatives believe in government, albeit limited government, but we also expect that the government that is in place do its job.  There was plenty of regulation in the BP case, perhaps too much government in that there was no one clear responsible agency but an overlapping mess.  When it comes to regulation I like to use the sports analogy of a baseball umpire.  Congress writes the rulebook and the executive branch is the umpire that makes sure the rules are followed.  If the umpire is looking at an attractive girl in the stands instead of the play on the field, he is apt to blow the call.  Blown calls seemed to be a way of life in the BP case. 

Deepwater exploration progressed faster than the regulations could keep up with the technology, and government was providing incentives to accelerate that exploration.  So there we have our first example of the government acting in a push-me, pull-you fashion, that is, incentives to explore but lacking regulations to make sure it is done safely and orderly.  Rather than looking at deep water drilling where the physics are different as a different animal needing a comprehensive review of the regulations, the regulations were piecemeal approvals of shallow water regulations. 

When BP first looked at drilling in this area they requested from the federal regulators an exemption from a rigorous environmental review.  That exemption was granted.  They also used riskier equipment that deviated from their own company safety policies.  Regulators also approved testing the blowout preventer at a pressure that was lower than federally required.  When BP wanted to delay mandatory testing of the blowout preventer when they lost “well control” in the weeks before the rig exploded, again the regulators granted the delay.

One federal agency, the Minerals Management Service, is in the dual role of both promoting drilling and regulating it.  They both collect royalty payments and issue fines for violations.  Do you think there may be a conflict here?  Is this the most effective form of government?  Here is a core beef of mine and of other conservatives.  The free market should provide the incentives for off shore drilling.  Either it is worth doing from a business standpoint or it is not.  The government’s role should be in the regulation.  When government wades into the middle trying to work both sides, it is doomed to fail.

There are multiple agencies that all have responsibility for regulation in this area in addition to the Minerals Management Service including, the Environmental Protection Agency, the Coast Guard, and the National Oceanographic and Atmospheric Administration.  Where there are gaps in regulation, whose responsibility is it to plug the gap?  When there is overlap, whose regulations controls? 

The Minerals Management Service approved BP’s drilling plan that projected a “worst case” blowout as producing 250,000 barrels per day of escaping oil.  However, the agency did not require BP to develop a contingency plan on how they would deal with such an occurrence.  The agency also did not require companies to have a backup systems to trigger in the event a blowout preventer failed.

There were early indications of problems with the well but federal regulators approved proceeding with the drilling rather than order it be halted until the issues were addressed.

So once this disaster spun out of control how did our government respond?  Based on laws written after the Exxon Valdez spill the government and BP were supposed to cooperate.  How did the administration show their cooperation?  They said they were going to keep their “boot on the neck of BP.”  Do you feel inspired to cooperate with someone who tells the world they will keep their boot on your neck, or do you start looking for ways to protect yourself?  Instead of concentrating on giving BP whatever assistance it needs to cap the well and focusing on containing the spread of oil, the administration sends in lawyers to start a criminal investigation.  Can’t that wait until the well is capped?  Why divert attention from the problem and have BP start losing focus on the well and more on assembling a legal team?

When governor Bobby Jindal of Louisiana wanted to build a sand barrier to stop the oil from reaching the wetlands in his state, he was told to wait while our federal government dithered for three weeks haggling among the White House, Coast Guard, Army Corps of Engineers, Fish and Wildlife Service, National Oceanic and Atmospheric Administration, and Environmental Protection Agency over the best approach.  If this administration, as they have claimed, has been in charge since day one and all of these agencies fall under the administration, why couldn’t this be hashed out in a day or two?  They finally approved one barrier rather than the 23 that were requested but eventually allowed more.  For an in depth story see New York Times

For the last year and a half we have been told we don’t have enough government running our lives and telling us what to do.  Yet here is a classic case of government regulator piled on top of regulator, and regulators trying to promote and control businesses at the same time.  We have regulators granting waiver after waiver of regulations that ultimately led to disaster and our administration instead of stepping up and taking responsibility is trying to look like they are in charge while at the same time blaming everyone else, yes even Bush, for what happened.  The head of the Materials Management Service resigned and President Obama says he learned about it afterwards.  Interior Secretary Salazar said she resigned on her own volition and that she wasn’t fired.  Why not?  For all the exemptions and waivers that were granted by the government that could have prevented the worst environmental disaster in history, this administration doesn’t think anyone other than BP should be responsible.

So we are supposed to let this administration grow government and control more of our lives when they can’t take responsibility for what is already under their control.  But don’t look for a serious investigation of government’s responsibility unless a large number of incumbents are flushed out of Congress and replaced by new members who actually represent the people.

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