Courting Disaster

America's Carbon Addiction: This Is An Intervention

Sara Robinson — Wed, 05 May 2010 13:23:04 -0400

George W. Bush -- who knew a thing or two about addiction -- was right about one thing: America is addicted to fossil fuels.

And that addiction is coming to a swift end, one way or another. Gaia, our economy, and our neighbors have all had enough. Look at the headlines. Look at their faces. They mean it: they're staging an intervention.

Denial is no longer an option. Twenty-nine miners are dead in Virginia. A record-breaking flood has put much of Nashville underwater. A volcano of oil in the Gulf of Mexico has taken another eleven lives, and is spewing death into the nation's richest fisheries.

The line of truth that runs through all these recent disasters is thin, bright, and uncompromising. Our insane addiction to carbon-based fuels is literally killing America. It's not abstract. It's not some fate that awaits us in the future if we don't mend our ways. The devastation is happening here and now, shouting at us from every new headline in the papers. It's forcing us to take serious stock of what our addiction has cost us already, and will continue to cost us every day we don't reckon with it.

Some of our best people -- strong and competent soldiers and workers -- are dying, every day, to feed our addiction to coal and oil.

Vast areas of our land and water are being destroyed, every day, to feed our addiction to coal and oil.

An enormous cartel of carbon-based industries has taken over our government, corrupting our democratic processes and raising an army of would-be brownshirts, to feed our addiction to coal and oil.

We have indebted ourselves to the world's worst tyrants and empowered our biggest economic competitors to feed our addiction to coal and oil.

We have put ourselves at the mercy of terrorists to feed our addiction to coal and oil.

We have sold off the greatest democracy in modern times, forfeited our most noble principles, and shredded the most astonishing political document in history to feed our addiction to coal and oil.

We are willfully mutilating the breathtaking beauty of this continent to feed our addiction to coal and oil.

We are killing this exquisite blue planet, creating an ecological genocide that extincts 100 species a day and will in short order put an end to 100,000 years of human civilization, to feed our addiction to coal and oil.

Look, people: we are doing precisely what addicts do. They wantonly, thoughtlessly annihilate their marriages, their children, their finances, their careers, and their communities -- in fact, pretty much everything they touch -- out of their single-minded focus on feeding their addictions. As a nation, we are behaving exactly the same way -- not caring who we hurt or what we destroy, as long as we get to mindlessly suck down our next barrel or carload of the black stuff. In the end, like all addicts, we will also destroy ourselves.

This run of recent news is a massive intervention -- history's way of sitting us down and letting us know, beyond doubt, that the bottom is now coming up fast and hard upon us; and we'd better fracking pay attention, because the party is over. The price of our irresponsibility is suddenly going way, way up -- and that rise is just getting started. Because, increasingly, our enablers are refusing outright to enable, excuse, or support our self-destructive behavior any more.

The only solution left, if we're ready to get real about this, is to take that first, hardest step: admit that we're addicted, and confess that the way we've been is no longer acceptable to us. And we need to do it right now, right here, not next year or in 2020 or when the last fish dies or the last beach is gone. We're the last ones in the world to see what everybody around us already knows, which is that our addiction is out of control. From here, there's only one way this goes -- unless we commit ourselves, right now, to restoring true sanity and balance to our national relationship to energy.

Recovery means we're going to be struggling with the decades of cumulative consequences of our addiction moment by moment, day by day, for a long while. It also means that we're going to have to take our eyes off the barrel, and keep them fixed firmly on the better carbon-free future ahead.

It means a lot of other things, too.

It means we don't replace the Deepwater Horizon with another oil rig, but with an offshore wind or wave generation farm instead.

It means we face the hard reality that oil has always been an insanely dirty, destructive, corrupt business, and nothing we can do will ever change that. Drill, baby, drill cannot help but lead to a lot more spill, baby, spill -- the Sierra Club estimates that Obama's offshore drilling plans will result in one coastal oil spill per year, on average, forever. We can have oil, or we can have fish and beaches and wetlands and a future. But we cannot have both.

It means we don't just get tougher about coal mine safety; we start shutting down the mines. This will be wrenching for the miners; but they've been a dwindling minority for so long that there are already more workers in the US wind generation sector than there are working in the coal industry. That's where the jobs of the future are, and we need to be creating more of them.

It means we amend the tax code to incentivize companies to invest in energy-saving technologies.

It means that we reconsider our obsession with cars and planes, and consider going back to our first love -- trains. (We're not about talking pokey old Amtrak. We're talking about sexy, sleek electric maglev trains that go 300 mph and run in near silence on overhead rails so thin they fit into the center median of an interstate, and cost a tenth of what a subway track does per mile. We're talking about hauling fresh tomatoes from California to New York in a totally carbon-free 10-hour overnight hurry that FedEx will envy. We're talking about becoming the world's next railroad barons as we build them for ourselves; then build them for the world. What's not to love?)

It means we start seriously investigating biochar as a truly effective and viable carbon-capture-and-sequestration technology -- one that also restores our topsoil, reduces our reliance on petroleum-based fertilizers, and improves our watersheds...while also generating carbon-negative energy.

And. most of all, recovering from this addition means we need to commit to taking specific steps, today, that will take us to a different future.

The Five Percent Solution
One very reasonable step might be The Five Percent Solution (the name is a play on a book about Sherlock Holmes' addiction) which climate blogger A Siegel describes here. We simply decide, as a matter of personal, regional, and national policy, to cut our carbon output by 5% a year, every year, until we hit zero. At that rate, we'd be down to about 10% of our current production by 2050, and at zero by 2060. The climate scientists tell us that this should probably be fast enough to keep the planet from parboiling by 2100. The technology to do this much -- and more -- is already well within reach.

Our past history more than proves that we're extremely competent at conservation, once we put our minds to it. Whenever we've committed to energy or water conservation goals in the past -- even when the goals were far more aggressive than a mere 5% -- we've almost always overshot them with room to spare. Time and again, we've discovered that it's really just a matter of making up our minds, and doing it. Once you open yourself up to this kind of change, the opportunities to cut output suddenly appear everywhere you look.

The five percent solution is critical to our emotional and spiritual recovery as well. Like most addictions, ours has been accompanied by industrial-sized quantities of self-loathing. We've been using carbon-fueled consumption to mask and self-medicate for a lot of existential pain. Getting ourselves straight has to include confronting and resolving that pain directly. And that means deciding to do something right for a change, and then seeing that decision all the way through to the end.

There's nothing like this kind of commitment to bring out the best in Americans. Back in 1960, John F. Kennedy committed the United States to put a man on the moon by the end of the decade. It's hard to imagine now what an outrageously daring proposal that was in its time. A lot of the technology needed for a moon landing didn't even exist yet (though NASA had a pretty clear idea of what would be involved, and some confidence that the missing inventions could be created within the time frame). The window he gave was impossibly short -- just nine years. And the goal itself was the stuff of science fiction, skirring the very edges of what might be humanly possible.

And yet he also projected supreme confidence that we could do this. We very quickly believed it ourselves; and it fueled a lot of the optimism of the 1960s. The space challenge crystallized a certain vision of American greatness. It made an irrefutable statement about America's technological and intellectual leadership. As we were reminded over and over through the decade that followed, it wasn't just about beating the Russians (though that certainly mattered). It was about showing ourselves and the world exactly what we were made of. We were convinced (probably rightly) that this was the thing that, a thousand years from now, history would remember us for. In the year 3000, we reckoned, children would be taught that "The Americans were one of the greatest nations in history. They were the first humans to go to leave the earth and explore space, starting with the moon."

If that's all they ever knew about us, it would be a legacy we could be proud of.

How the mighty have fallen. That strong, confident sense of our own potential is far behind us. At this late stage, our self-worth has degraded to the point where, like a lot of addicts, we think can only command respect by either buying off or beating the crap out of anybody who dares to cross us. That's an ugly self-image, rooted in an ugly kind of power. It's made us mean and abusive. It's led us to financial and foreign policy ruin. It's made us the world's town drunk -- blustering, bullying, out of control, and scary, unless we're passed out and oblivious, which we often are.

Any real and lasting recovery is going to have to address that deep soul pain. It's going to have to heal the damage, defuse our grandiosity and restore our humility, repair our connections to each other and the world, and get us back to where we can see ourselves as authentically positive contributors to history and the human enterprise again.

Committing to a vision of a carbon-free America, accomplished at a very visible 5% per year for the next 50 years, could go a long way toward restoring our own faith in ourselves. It could revive JFK's old 1960 definition of "American greatness" -- the one that said that we deserved to lead not to the extent to which we could become the biggest bully, but to the extent that we could establish ourselves as the smartest, most creative, most innovative, most democratic people on earth. Climate change is an existential challenge that, well met, can absolutely re-define who we are, both in our own eyes and in the eyes of the rest of the planet.

Stepping up to that five percent challenge in a positive and inspiring way will have some immediate practical and political benefits, too. For one thing, it will put a fast end to the pseudo-populist whining from the right, embarrass resistant corporatists into getting on board, and rally the country around a truly positive and inclusive vision of its own future. For another, it would put progressives, once and for all, on the moral offensive as the guardians of the true American vision.

What -- are you against American greatness? Are you not willing to sacrifice for a stronger, more secure, more independent, more resilient nation? Are you one of those small-minded, stingy whiners who don't believe in your country, and aren't willing to invest in great things?

If so: shame on you. Also: please shut up.

This kind of turnaround is well within the reach of any truly visionary leader. President Obama could do it tomorrow -- and would, if he was willing to live up to even half his promise. It would, absolutely, be his defining JFK moment -- the moment that we foreswore our addictions, reclaimed our national soul, seized this day and our entire future, and put ourselves back on the path to greatness.

We should want the second line in those 3010 history books to read: "Forty years later, the Americans were the foresighted visionaries who led the world off carbon-based fuels and put a stop to global warming, thus saving civilization." Today could easily be the first day of the rest of that marvelous history. But that will only happen if get our heads out of the barrel, reclaim our greatness, and become the country we once were -- and still have it within us to be again.

Finance, Mine, Oil & Debt Disasters: THIS is Deregulation

Dave Johnson — Tue, 04 May 2010 10:41:31 -0400

The terrible Gulf oil, West Virginia mining, Wall Street finance and government debt disasters all demonstrate the ongoing catastrophic and continuing results of conservative policies. Each of these is a direct consequence of letting corporate conservatives take over government and dismantle the regulatory and democratic protections that We, the People fought so hard for following the Great Depression -- itself a previous demonstration of the failure of conservative policies.

How often have you had to hear that "the market" is the best way to run things? That is is "self-correcting?" That regulations are government "interference" or "meddling" in the market? That business/free markets/private sector always does things better or is more efficient than government? When you hear these you are experiencing the clash between a "one-dollar-one-vote" free market system -- as we had before the Teddy Roosevelt progressive era and the Franklin Roosevelt New Deal -- and "one-person-one-vote" democratic, We, the People system that brings the benefits of our economy and our country to the most people. But because of the power of money and marketing most people are hearing only one side of an ongoing argument between the wealthy few and the broad masses of working people.

For decades we have heard these pro-market, anti-government arguments repeated over and over and over and over and over and over. Big corporations have a lot of money to buy a big megaphone, so you hear that government is bad, business is good and the people ought to just keep their noses out of the marketplace and stop telling businesses how to do things. You hear that taxes are bad, "hurt the economy," "cost jobs," "take money out of the economy," "just get passed through to customers anyway" and a million similar great-sounding slogans that fall down under minimal evaluation. They have been repeated over and over, until we forgot why we had fought so hard for strong government regulations and high taxes at the top.

After the disaster of Nixon the country learned about cracks in our democracy that let big money get their nose under the tent. But after Watergate we didn't plug all of the leaks, and big money got into the tent anyway. They used their position to give themselves more power, and used that power to give themselves even more, etc. and now we have a system that is corrupted absolutely.

So with the conservative government of Reagan and then later under the all-out anti-government conservative administration of George W. Bush we have had the opportunity of seeing just what happens when these "free market" ideas are given free reign to replace democracy. Anti-government zealots were put into positions inside the government and used that power to take apart the protections that We, the People had painstakingly built.

Taxes were cut to "defund" government in order to "starve the beast." The strategy was create huge deficits so the public would later demand cuts in government benefits. In the meantime the deficits would be used as an excuse to cut government oversight, inspections and enforcement of rules restricting the activities of big corporations. But all they did was create huge deficit that added up to massive debt.

Katrina was the first clear, public demonstration of the governing offered by conservatives. When they talked about replacing progressive ideas of "we're in this together" and "watching out for each other" with "personal responsibility" they meant it. And the country saw what that meant to real people in real trouble.

More recently we have been hearing about disaster after disaster and catastrophe after catastrophe, all caused by businesses running out of control, aided by conservative government that relaxed or just stopped enforcing regulations and laws. Each catastrophe is beyond the scope or willingness of private businesses to repair, requiring public intervention, at great cost. (But never any suggestion of "clawback" - or getting back the profits that were made while creating the catastrophe.)

We all certainly know about the Wall Street financial crisis caused by the big banks and insurance giants. We heard about the SEC ignoring warnings about Bernie Madoff and Goldman Sachs and all the others. We've seen hearings about the things that WaMu was doing, and loans going to people who couldn't read, and brokers making up incomes on "liar loans" and ratings agencies giving top ratings to "designed to fail" bond deals that investment banks and hedge funds had put together so they could make huge "swap" bets against them when the loans went under... The government, under control of "free market" conservatives looked the other way the whole time.

They brought down the economy of the whole world, requiring government bailouts that added up to more money that has been spent by our government in the history of the country. And now they are fighting tooth and nail to keep We, the People from passing financial reforms to bring Wall Street back under control.

Just recently there was the West Virginia mining disaster caused by deregulation, sweet deals between the company and regulators and lack of enforcement. The CEO of the Massey Energy had literally bought himself a judge, who then voted in favor of Massey Energy. Corrupted absolutely, 29 dead later.

And now, the huge, huge catastrophe in the Gulf.

This is the Reagan Revolution coming home to roost, and I will be writing about the terrible price we are paying and will be paying for a long time for the failed experiment in conservative ideology.

See the Reagan Revolution Home To Roost series.

Conservative & Corporate Failure in the Deepwater Disaster

Terrance Heath — Mon, 03 May 2010 15:42:28 -0400

The only things more astounding than conservatives' record of failure, are their denials of "personal responsibility" for the ensuing disasters, and their attempts to blame somebody — anybody — else. Their response to the growing ecological disaster in the Gulf of Mexico is taken straight from Bart Simpson. "I didn't do it, no one saw me do it, there's no way you can prove anything!"

Despite their latest attempt at dodging accountability, the Deep Horizon disaster is just the latest collision of corporate failure and conservative failure — and its roots go back to the previous administration and its conservative ideology.

The attempt to label the Deep Horizon disaster "Obama's Katrina" is underway at the same time that conservatives are telling us that the proper response is to the oil spill in the Gulf is more drilling. The best example is ex-governor Sarah Palin's Facebook post about the oil spill.

5,000 barrels of oil are already leaking into the Gulf of Mexico every day. The massive and growing oil slick is reaching the shores of Louisiana and it's scheduled to touch Alabama this weekend. And now the coast guard confirms that a "mobile inland drilling unit" near Morgan City, Louisiana overturned today.

This all says one thing to the former Governor of Alaska: accidents happen, but we must continue to drill.

Alaskans understand the tragedy of an oil spill, and we've taken steps to do all we can to prevent another Exxon tragedy, but we are still pro-development. We still believe in responsible development, which includes drilling to extract energy sources, because we know that there is an inherent link between energy and security, energy and prosperity, and energy and freedom. Production of our own resources means security for America and opportunities for American workers. We need oil, and if we don't drill for it here, we have to purchase it from countries that not only do not like America and can use energy purchases as a weapon against us, but also do not have the oversight that America has.

In the coming days, there will be hearings to discover the cause of the explosion and the subsequent leak. Actions will be taken to increase oversight to prevent future accidents. Government can and must play an appropriate role here. If a company was lax in its prevention practices, it must be held accountable. It is inexcusable for any oil company to not invest in preventative measures. They must be held accountable or the public will forever distrust the industry.

"No human endeavor is ever without risk," Palin's ghostwriter adds later, comparing dangerous and pointless off-shore domestic drilling to the moon landing.

For what it's worth, Democrats are hardly immune here. Just six months ago, Louisiana Senator Mary Landrieu downplayed safety concerns about offshore drilling. At a congressional hearing, moments after BP's Vice President of Exploration David Raney declared the company's practices in the Gulf "both safe and protective of the environment," Landrieu sat in front of an image of a burning Australian oil rig and said, "This rig would not be allowed to operate in the United States of America."

At another hearing last month, Landrieu called the risks of offshore drilling "quite minimal." And even as the oil threatens her Louisiana's coastline and the industries that depend on it, a statement released by Landrieu's office says, "she also firmly believes that this accident should not be used as an excuse to abandon plans to make America more energy secure." In other words, more drilling.

But assurances that our regulations are sufficient to prevent another such catastrophe are undermined by the reality of years of conservative misrule and agency capture.

ProPublica noted that the agency charged with overseeing oil rigs was quite literally lying down on the job when it could have acted to prevent just the kind of ecological disaster we're witnessing in the Gulf.

As The Wall Street Journal reported this morning, the oil rig lacked a device — known as an acoustic control — that would’ve served as a safeguard of last resort. While the effectiveness of the $500,000 device is debated, the Journal points out that it is used by other oil-producing nations, including Brazil and Norway. Regulators in the U.S. were also considering requiring it a few years ago, but after industry objections decided that the devices were expensive and needed more study.

So which regulator oversees rigs and made that decision? It was the Department of Interior’s Minerals Management Service, an agency that has had a spotty record over the past few years.

In 2008, we pointed out that MMS was in quite a bit of trouble for ethical violations by its officials. The scandal involved sex, drugs and (quite literally) sleeping with the very industry it was regulating.

(Sourcewatch notes that Landrieu is one of the highest recipients of oil industry money — receiving $574,005 from oil companies from 2005 - 2008 emdash; and voted in favor of big oil companies 67% of the time on oil-related legislation from 2005 - 2007. I don't have the time or space to address it in this blog post, but I wonder how this all adds up for BP. Sure, the company will spend much more than the $500,00 it objected to paying the safety device that might have prevented all of this, but does the company's profits between now and then add up to even more than they'll likely pay for the clean-up? If someone's done the math on that, I'd be interested in seeing it.)

In fact, a good bit of those industry objections came from none other than BP.

In a letter sent last year to the Department of the Interior, BP objected to what it called "extensive, prescriptive regulations" proposed in new rules to toughen safety standards. "We believe industry's current safety and environmental statistics demonstrate that the voluntary programs continue to be very successful."

That was one in a series of clashes between the industry and federal regulators that began during the Clinton administration. In 2000, the federal agency that oversaw oil rig safety issued a safety alert that called added layers of backup "an essential component of a deepwater drilling system." The agency said operators were expected to have multiple layers of protection to prevent a spill.

But according to aides to Sen. Bill Nelson, a Florida Democrat who has followed offshore drilling issues for years, the industry aggressively lobbied against an additional layer of protection known as an "acoustic system," saying it was too costly. In a March 2003 report, the agency reversed course, and said that layer of protection was no longer needed.

"There was a big debate under the Bush administration whether or not to require additional oil drilling safeguards but [federal regulators] decided not to require any additional mandatory safeguards, believing the industry would be motivated to do it themselves," Carl Pope, Chairman of the Sierra Club told ABC News.

Yet, if BP is an example of industry being motivated to require additional safety standards, it hardly inspires hope.

In March 2005, a massive explosion ripped through a tower at BP's refinery in Texas City, Texas, killing 15 workers and injuring 170 others. Investigators later determined that the company had ignored its own protocols on operating the tower, which was filled with gasoline, and that a warning system had been disabled.

The company pleaded guilty to federal felony charges and was fined more than $50 million by the U.S. Environmental Protection Agency.

Almost a year after the refinery explosion, technicians discovered that some 4,800 barrels of oil had spread into the Alaskan snow through a tiny hole in the company's pipeline in Prudhoe Bay. BP had been warned to check the pipeline in 2002, but hadn't, according to a report in Fortune. When it did inspect it, four years later, it found that a six-mile length of pipeline was corroded. The company temporarily shut down its operations in Prudhoe Bay, causing one of the largest disruptions in U.S. oil supply in recent history.

BP faced $12 million in fines for a misdemeanor violation of the federal Water Pollution Control Act. A congressional committee determined that BP had ignored opportunities to prevent the spill and that "draconian" cost-saving measures had led to shortcuts in its operation.

Other problems followed. There were more spills in Alaska. And BP was charged with manipulating the market price of propane. In that case, it settled with the U.S. Department of Justice and agreed to pay more than $300 million in fines.

Well, Sarah Palin was right about one thing: Alaskans understand oil spills, precisely because they've faced to many of them due to the unwillingness of an oil company follow safety requirements, and the unwillingness of a conservative-led government to hold industry accountable. According to the the New York Times, during the George W. Bush administration, MMS witheld offshore drilling data, thus hindering risk assessment of drilling in Alaska.

As the New York Times reported back in September 2008 — the tail end of the George W. Bush administration — those "industry objections" to additional layers of protection may well have been in the form of "pillow talk" between an agency in bed with the industry it was supposed to monitor. The times reported that a "a dysfunctional organization that has been riddled with conflicts of interest, unprofessional behavior and a free-for-all atmosphere for much of the Bush administration’s watch," where officials not only accepted gifts from energy companies, but "frequently consumed alcohol at industry functions, had used cocaine and marijuana, and had sexual relationships with oil and gas company representatives."

No fewer than three reports to the Bush administration (posted here, here and here) detail the kind of behavior demonstrated by Gregory W. Smith one high ranking official the Bush administration refused to prosecute.

The other high-ranking official the Justice Department has declined to prosecute is Gregory W. Smith, the former program director of the royalty-in-kind program. Mr. Smith worked in Colorado and reported to Ms. Denett. He retired in 2007.

The report said that Mr. Smith improperly used his position with the royalty program to get an outside consulting job helping a technical services firm seek deals with oil and gas companies with which he was also conducting official business.

The report accused Mr. Smith of improperly accepting gifts from the oil and gas industry, of engaging in sex with two subordinates and of using cocaine that he purchased from his secretary or her boyfriend several times a year between 2002 and 2005. He sometimes asked for the drugs and received them in his office during work hours, the report said.

The report also said that Mr. Smith lied to investigators about these and other incidents, and that he urged the two women subordinates to mislead the investigators as well.

In discussions with investigators, the report said, Mr. Smith acknowledged buying cocaine from his secretary and having a sexual encounter with her at her home, but he denied discussing drugs at work. He also denied telling anyone to lie, saying that he only told people that “no one has a right to know what I do on my personal time.”

If thisall bears a striking resemblance to the SEC pornography scandal, which also took place on the George W. Bush administration's watch, it's no coincidence. It's the same story of an government agency driven by an ideology that doesn't even believe the agency should exist in the first place, let alone believe in the agency's mission. It's the story of what happened to key government agencies during the Bush era, which were remade by filling the ranks of permanent employees with appointees whose strongest credentials were their conservative beliefs, and others "burrowed in" to permanent federal positions as the Bush administration wound down.

The real MMS scandal actually isn't the sex or the drugs, any more than the real SEC scandal the pornography. It's the willful lack of oversight driven by a conservative ideology that believes not merely that "government doesn't work," but truly believes that it shouldn't work, and once in power sets to work making sure that it can't work. The end result is setting the government up for what's called "regulatory capture."

Of particular concern is the possibility of regulatory capture, which takes place when a regulator begins acting for the benefit of its subjects rather than in accordance with its stated mandate of minimizing systemic risk. While any agency can theoretically be captured by concentrated and powerful individuals, a breach of the “mothership” would carry far more severe repercussions than the loss of one or two “destroyers.” Of course, only the mothership can accomplish certain tasks; in the economic context, it would exist to take on challenges of a scope that smaller bodies simply cannot handle.

...Two archetypal scenarios for regulatory capture exist. The first is an underpowered, understaffed regulator working to control a wealthy, concentrated industry. In these situations, the sheer imbalance in resources means that the regulated parties can reward or punish the agency, but not vice versa. Predictably, rational bureaucrats will choose to cater their policies to the benefit of the subjects instead of suffering their wrath — recall, a regulatory job well done rarely carries any significant benefits to its engineers. The Department of Interior’s Minerals Management Service is a perfect example of a body that appears to have fallen prey to this pattern. Even a person of upstanding moral character can understand the difficulty of resisting the repeated entreaties of Exxon and the like for the sake of sticking to an unadulterated scheme of allocating oil and gas exploration rights. Someone sitting at the MMS desk may well wonder if anyone would ever notice a shift away from the prescribed approach towards one that favors the companies they deal with on a day-to-day basis. These incentives to cooperate exist even though the relationship between the regulator and the regulated parties is facially adversarial, with MMS holding rights that producers want but cannot get.

Except that I don't see MMS as "falling victim" to "regulatory capture" but regulatory surrender, driven by an ideology that — at its most extreme — seeks to render the government unable to act in times of natural, ecological or financial disaster. That's the "catastrophic success" of conservative failure. It makes corporate failure inevitable and perhaps even irreparable.

In the Gulf oil spill disaster, we see once again what happens when the two collide.

Conservatism's Barnum & Bailey World

Terrance Heath — Thu, 29 Apr 2010 13:55:43 -0400

OK. Maybe just a Barnum world — P.T. Barnum, that is. This legendary promoter of famous hoaxes comes to mind once again as I watch the various congressional hearings related to the financial crisis, or read of the testimony from those hearings. Why? Because the most famous thing he probably never said — "There's a sucker born ever minute" — could be, and perhaps is, the unofficial motto of Wall Streets banksters and the conservatives (plus some Democrats who should have known better) that aided and abetted them.

And, no, it hardly matters that Barnum is said to have denied uttering the famous words. The phrase was coined in connection to Barnum's role in the Cardiff Giant hoax, an amusing bit of history about a battle between hoaxers and hucksters who didn't much care if their customers knew what what they were paying for or got what they were paying for — so long as the scam paid off, and the scammers got paid in the end.

I couldn't help hearing some hauntingly Barnumeque echoes in Sen. Carl Levin's grilling of Goldman Sachs CFO, David Viniar.

It's the kind of scene that some Hollywood screenwriters wish they could write.

It was the Perry Mason moment in the unraveling of what was left of Goldman Sachs' reputation. Only in this case, it involved a grizzled former prosecutor, Sen. Carl Levin, rather than a genial defense attorney. The case was broken and the truth about the depth of Goldman's corruption revealed in his startling cross-examination of Goldman Chief Financial Officer David Viniar.

The Michigan Democrat, citing the language of the internal e-mails of Goldman traders concerning the deceptive products they were selling, asked: "And when you heard that your own employees in these e-mails are looking at these deals said `God what a shitty deal. God, what a piece of crap,' when you hear your own employees and read about those e-mails, do you feel anything?"

Viniar's answer told us all we need to know about the banal but profound immorality of Goldman's business culture: "I think that's very unfortunate to have on e-mail."

A flabbergasted Levin cut in with "On e-mail? How about feeling that way?" and Viniar, apparently moved by jeers of ridicule from the audience, conceded "I think it is very unfortunate for anyone to have said that in any form." Pressed further by Levin asking, "How about to believe that and sell them?" the CFO finally conceded, "I think that's unfortunate as well." To which Levin responded, "That's what you should have started with."

Goldman's strategy to keep dodging until the clock ran out may have been largely successful, but at least Levin landed a punch. Viniar seemed surprised by the audience's response to his "we're very sorry we got caught" response to Levin's questioning in the end. Perhaps that's because he assumed they understood and lived by the same rule he and his colleagues followed: "There's a sucker born every minute."

Viniar is far from alone, of course. It's a rule studiously followed by many more like him. They're happy to sell something to people who don't know what the huckster knows — that they're buying into a "shitty deal" that isn't nearly what they think it is — and won't find out until their money or investment is gone and the damage is done.

John Devaney, a trader who made his fortune investing in the kind of adjustable rate mortgages that he said a consumer had to be an "idiot" to take on, is another example.

John Devaney, a bond trader who became a symbol of hedge fund excess and collapse hit “rock bottom” with the subprime crash — which, for him, meant losing about $100 million of his personal wealth, selling a mansion in Key Biscayne, Florida, and artwork by Renoire and Cezanne, as well as his private jet and his yacht. But in 2007 he was riding high, trading in subprime mortgages that he said he hated and “hoped would explode”, and mortgaged backed securities of which he said a consumer would have to be an “idiot” to buy.

The housing boom was good to John Devaney. Really good. He owns a Rolls-Royce, a Gulfstream Jet, a 12,000-square-foot mansion in Key Biscayne and a 143-foot yacht, as well as a few Renoirs and a valuable 1823 reproduction of the Declaration of Independence.

Devaney’s not a developer, and he’s certainly not a flipper. The 36-year-old CEO of United Capital Markets is a bond trader. And one of his specialties is buying and selling bonds that are backed by the mortgage payments of ordinary homeowners.

Option ARMs? Devaney loves ‘em. “The consumer has to be an idiot to take on those loans,” he says. “But it has been one of our best-performing investments.”

Devaney’s not out to get people into bad loans – or into good ones. He just makes bets on how many people will repay and when. Still, the $5.7 trillion mortgage-backed-securities market had a key role in today’s housing mess.

Are they a disaster for many people? Sure, but they are (or were) one of his firm’s “best-performing investments.” So what’s he got to worry about? After all, he’s supposed to make money for his shareholders, and that's all he has to be concerned about. If he’s trading in something that spelled ruin for those who bought it without knowing any better, well, that’s their problem, not his. Right?

If the "Barnum Rule" has a corollary perhaps it's another famous saying— this time from W.C. Fields: "Never Give a Sucker an Even Break." (In fact, the phrase became the title of Field's last movie.)

It's pretty self explanatory. But it essentially boils down to this: There's no wrong way to make a buck.

It is one of the great curiosities of conservatism that its adherents enthusiastically destroy regulations which — besides a conscience — act as a bulwark against greed and corruption, thereby making greed and corruption inevitable. Because when (a) there’s no wrong way to make a buck, and (b) no accountability or consequences for malfeasance, there’s no disincentive either. (Other than being able to sleep at night, which isn’t a problem if you don’t have a conscience in the first place.)

The only thing "wrong" is getting caught. Those values, the ones at the heart of the Goldman Sach's deal and others like it, were laid bare by Levin's questioning of Viniar, who had to be coaxed from "it's unfortunate that we got caught" to "it's unfortunate that we knew we were selling a 'shitty deal' to our customers, and sold it anyway."

In other words, it was a scam and they knew it. But in their world, there's nothing wrong with that.

Evidence of that can be found in This bit of video from CNBC, noted by Matt Taibbi.

Look at about the 5-minute mark of this video — Janet Tavakoli debating Rick Santelli about predatory lending. You basically have a whole panel of CNBC goons pooh-poohing the idea that predatory lending took place, setting up the inevitable revisionist history that the 2008 crash was caused by individual homeowners borrowing beyond their means.

My favorite part of this comes roughly at the six-minute mark. Tavakoli has just deftly explained how a lot of the predatory practices worked — people with limited financial literacy were presented with long and complicated mortgage deals, and told they would have a fixed payment in perpetuity or a guaranteed re-finance, or were nailed by fraudulent appraisals. Then she mentioned the big one, the fact that investment banks then took all these mortgages and with eyes wide open securitized them and sold them off as worthy investments to suckers on the other end of the chain.

While she’s saying all this stuff, Santelli, who is one of the fathers of the Tea Party movement, is shaking his head furiously, video-scoffing at everything she’s saying. When he finally does get a chance to speak, this is what he says:

Here’s my problem with this. It takes two to tango. You can’t cheat an honest man.

You can’t cheat an honest man? What the fuck does that mean?

What it means is that there seem to be two rules on Wall Street; two tenets fervently believed by the free market fundamentalists, whom Tavakoli says "released the brakes": "There's a sucker born every minute." and "Never give a sucker an even break." (Appropriately enough, Santelli's statement is also the title of another another W.C. Fields movie.)

It means that — in the Barnum & Bailey world where Viniar, Devaney, and Santelli reside, from which CNBC broadcasts, and that free market fundamentalists defend — there's no shame in being a scammer, but only in being scammed.

And, not to say that conservatives themselves necessarily condone any of the above or are less appalled by it than the rest of us, but conservatism actually cannot help but leave us a “candy store” for sociopaths and-near sociopaths.

It seems that conservatives, with their devotion to deregulation, believe that’s the way it should be. Since the subprime tsunami made its first waves, they’ve saved most of their derision for homeowners who were deceived into or didn’t understand all the details of the mortgages they were taking on, while sparing surprisingly little for the Wall Streeters who made tons of money off financial instruments they didn’t fully understand. The difference is that the latter got bailed out and the former is still waiting.

The moral of all the above would seem to be: better to scam than to be scammed. It’s a Barnum and Bailey world, truly. Or at least a P.T. Barnum world in which “there’s a sucker born every minute” and the golden rule is “Never give a sucker an even break.” Better a scammer than a sucker. Except that we’re all suckers for the trappings of success.

You can hear it in the responses of the CNBC crew, when Tavakoli spoke of borrowers who were were sold mortgages that even the mortgage brokers knew they couldn't afford, and homeowners who were deceived about the terms of their mortgage, their interest rates, in some cases were presented with new documents and information at closing that they had little time to fully digest, and perhaps trusted people to have their best interests at heart who didn't, and didn't care so long as they profited.

"Whose fault is that?" pipes up one, who appeared to be the moderator of the discussion, which can be loosely translated as, "The suckers got what they deserved." They should have known better. They should have expected to be scammed. Or rather, they should have known the rules of the game: (1) "There's a sucker born every minute. (2) Never give a sucker an even break." But they didn't, and they got taken. Boo, hoo.

They are the "losers" Santelli screamed about in his now famous rant, in which he also gestured toward the brokers working the phones behind him and declared "This is America." And in that America, they are the winners. People like Gheorghe Bledea, who lost his home in a Goldman deal, are the losers.

The home mortgage of Gheorghe Bledea was among those that wound up in the Abacus portfolio.

In May of 2006, a broker had approached Mr. Bledea, a Romanian immigrant, to pitch him a deal on a loan to refinance the existing mortgage on his Folsom, Calif., home.

Mr. Bledea, who is suing his lender in Superior Court of California in Sacramento on allegations that he was defrauded, wanted a 30-year fixed-rate loan, according to his complaint. His broker told him the only one available was an adjustable-rate mortgage carrying an 8% interest rate, according his court filing.

Mr. Bledea, who says he has limited English-speaking skills, was told that he'd be able to exit the risky loan in six months and refinance into yet another one carrying a lower 1% rate. Mr. Bledea agreed to take out the $531,000 loan on July 21, 2006.

The new loan never materialized. Within months, Mr. Bledea and his family were struggling under the weight of a $5,800 monthly note, says his son, Joe Bledea.

"Well, then it's a legal issue," Santelli shouts, suggesting that it was a matter for the courts to sort out, not Congress. Of course, the other side of the coin is that by the time such cases make it to court, the damage is already done, and the profits have already been made. The courts can only punish those scammers who (a) get caught and (b) whose victims/marks have the resources to file a lawsuit and pay attorney's fees.

And even then, it's unlikely that all losses/profits will be recovered. Bernie Madoff, after all, went to prison but billions of his ponzi scheme profits are unaccounted for and probably beyond reach, as he may have intended given his efforts to hide assets before his arrest. And Madoff is only one example, perhaps symbolic of the worst of the financial world in which he thrived for so long, but he's one who didn't get away with it out of many who did.

As Robert Scheer pointed out, Bernie Madoff is being conveniently treated as a lone "rotten apple," when in fact he is not only symbolic of the system that let him get away with it, but a prime player, with a seat at the table in making the rules of the game he played.

How convenient for the judge and the media to paint Bernard Madoff as Mr. Evil, a uniquely venal blight on an otherwise responsible financial industry in which money is handled honestly and with transparency.

Madoff, sentenced Monday to 150 years in prison for bilking investors of billions, should be exhibit A in why the dark world of totally unregulated private money managers and hedge funds should be opened to the light of systematic government supervision. Instead, he is being treated as an aberrant menace, with the danger removed once the devil incarnate, as his victims describe him, is locked up and the key thrown away.

For goodness’ sake this was not some sort of weird outsider who flipped out, but rather a key developer of the modern system of electronic trading and a founder and chairman of Nasdaq. Madoff often was called upon to help write the rules on financial regulation, and therefore became quite expert at subverting them.

Painting Madoff as "Public Enemy #1," and applauding his sentence as a kind of final justice, masks the reality that Madoff is but one player in what was essentially a ponzi economy, of which the majority of us are victims. Unlike Madoff’s victims — who at least had the pleasure of seeing him taken away in handcuffs, and at least have a shot of recovering some fraction of the $65 billion he stole from them — we aren’t likely to see much of the $2.5 trillion we’ve essentially lost (so far), the perpetrators have gotten away with it.

Madoff, it turned out, was no Public Enemy No. 1 to rival John Dillinger, the Great Depression thug at the center of Hollywood’s timely release this holiday weekend, “Public Enemies.” In the context of our own Great Recession, Madoff’s old-fashioned Ponzi scheme was merely a one-off next to the esoteric (and often legal) heists by banks and bankers. They gamed the entire system, then took the money and ran before the bubble burst, sticking the rest of us with that fear, panic and loss.

The estimated $65 billion involved in Madoff’s flimflam is dwarfed by the more than $2.5 trillion paid so far by American taxpayers to bail out those masters of Wall Street’s universe. A.I.G. alone has already left us on the hook for $180 billion. It’s hard for those who didn’t have money with Madoff to get worked up about him when so many of the era’s real culprits have slipped away scot-free. Already some of those same players are up to similarly greedy shenanigans again now that the coast seems to be clear.

Washington had no choice but to ride to their rescue last fall to prevent even greater systemic catastrophe. But that rescue is tainted. As the economist Joseph Stiglitz wrote in this month’s Vanity Fair, “In the developing world, people look at Washington and see a system of government that allowed Wall Street to write self-serving rules which put at risk the entire global economy — and then, when the day of reckoning came, turned to Wall Street to manage the recovery. They see continued re-distributions of wealth to the top of the pyramid, transparently at the expense of ordinary citizens.”

If it isn't clear yet, in their world, "ordinary citizens" is another way of saying "sucker." And it's nobody's job to look out for suckers. Nor is it profitable, if nobody else is doing it.

Goldman may be in the hot seat, much as Madoff was, but as the firm pointed out in its own defense, Goldman only did what most major investment firms were doing.

According to the SEC, Goldman Sachs knew about the hedge fund’s bets, knew it played a significant role in choosing the assets in the portfolio, and yet did not tell investors about it. (Goldman Sachs has called the SEC’s accusations “completely unfounded in law and fact.” And in another more detailed statement [3], it said it “did not structure a portfolio that was designed to lose money.”)

As we reported at ProPublica last week, many other major investment banks were doing a similar thing [4].

Investment banks including JPMorgan Chase [5], Merrill Lynch [6] (now part of Bank of America), Citigroup, Deutsche Bank and UBS also created CDOs that a hedge fund named Magnetar was both helping create and betting would fail [7]. (Update 4/17: Magnetar denies [8] it was making such bets.) Those investment banks marketed and sold the CDOs to investors without disclosing Magnetar’s role or the hedge fund’s interests.

Here is a list of the banks that were involved [9] in Magnetar deals, along with links to many of the prospectuses on the deals, which skip over Magnetar’s role. In all, investment banks created at least 30 CDOs with Magnetar, worth roughly $40 billion overall. Goldman’s 25 Abacus CDOs—one of which is the basis of the SEC’s lawsuit—amounted to $10.9 billion [10].

More specifically, Goldman was only doing what other major investment firms were doing and getting away with.

And they were getting away with it because the years during the build-up to the 2008 crash — September 16, 2008, to be exact, towards the last months of the George W. Bush administration — it was nobody's job to look after "suckers," or to come between them and scammers in pursuit of profit at almost any cost.

We know it wasn't the government's job. We know the SEC had so much more pressing business at hand during these years, that it couldn't be bothered to detect Madoff's scheme. We know warnings of the coming crash were ignored at the Fed, along with warnings from the FBI. We know that Congress abdicated its responsibility as the crisis grew into the crash in the fall of 2008.

Yet, in the end, it comes down to this: Goldman Sachs, ACA Capital, IKB Deutsche Industriebank and even the rating agencies never had any duty to protect us from their greed. There was one entity that did — our government.

But it was the purported regulators, including the Office of the Comptroller of the Currency and the Office of Thrift Supervision, that used their power not to protect, but rather to prevent predatory lending laws. The Federal Reserve, which could have cracked down on lending practices at any time, did next to nothing, thereby putting us at risk as both consumers and taxpayers. All of these regulators, along with the S.E.C., failed to look at the bad loans that were moving through the nation’s banking system, even though there were plentiful warnings about them.

More important, it was Congress that sat by idly as consumer advocates warned that people were getting loans they’d never be able to pay back. It was Congress that refused to regulate derivatives, despite ample evidence dating back to 1994 of the dangers they posed. It was Congress that repealed the Glass-Steagall Act, which separated investment and commercial banking, yet failed to update the fraying regulatory system.

It was Congress that spread the politically convenient gospel of home ownership, despite data and testimony showing that much of what was going on had little to do with putting people in homes. And it’s Congress that has been either unwilling or unable to put in place rules that have a shot at making things better. The financial crisis began almost three years ago and it’s still not clear if we’ll have meaningful new legislation. In fact, Senate Republicans on Monday voted to block floor debate on the latest attempt at a reform bill.

And the government failed to protect us from financial practices that brought about the crisis, because according to the brand of conservatism that held sway it wasn't the government's job to protect citizens from Wall Streets ponzi schemes, shell games, and "shitty deals."

Madoff's sins preceded the meltdown by years, diverting attention from how Wall Street itself had become a far more sophisticated crime scene, not of lone con men but of institutions that had successfully lobbied to loosen laws and regulations and build an industry on a bedrock of fraud, and deception.

This decriminalized environment was promoted through the expenditure of hundreds of millions of dollars for lobbying legislators and campaign contributions. There was extensive collusion between the financial services industry and politicians of both parties.

Cutbacks in government monitoring of financial practices became the norm with fines and "settlements" in (with some exceptions) replacing vigilant oversight and the prosecution of wrongdoers at the federal and state level. Fraudsters were primarily punished with fines businesses paid as a cost of doing business.

These practices, aided and abetted by cutbacks in the budgets of agencies that monitored and enforced laws, meant that an open season on homeowners and investors had been declared. In 2004, the FBI warned of an epidemic of mortgage fraud but also acknowledged their own white-collar crime squads had been downsized when fighting "the war on terror" became the priority.

As conservatives dominated politics, laws were softened and courts soon looked the other way as a historically unprecedented transfer of wealth got underway.

It's the same conservatism adherents of which can be heard today declaring that the "only" purposes of government is defense, and the protection of property (wealth) and personal safety. Regulating the financial sector in order to prevent another crash doesn't make the list.

And that's a problem, because as Steve Perlstein pointed out, contrary to what the president said last week, people on Wall Street didn't "forget" that "behind every dollar traded or leveraged, there is a family looking to buy a house, pay for an education, open a business or save for retirement." They simply didn't care.

I honestly don't know whether Goldman violated Section 10(b) of the Securities Exchange Act of 1934. What I do know is that the facts outlined in the government case are a powerful and convincing reminder of Wall Street's complete and utter amorality. There, concepts like truth, justice, fairness, trustworthiness, duty of care, right and wrong are now totally without meaning. There is only buy or sell, long or short, win or lose. ...

In a trading culture, because buyer and seller are both customers, the Wall Street firm owes its loyalty to neither. It's free to be loyal only to itself. And things get even more complex when firms like Goldman use their own capital to take positions without disclosing it to anyone.

They didn't have to care. It wasn't their business, it wasn't their concern, and it didn't increase profits to care. Plus, there's no real penalty for not caring, and there may not be, if they successfully prevent or weaken financial reform legislation.

When the hearings are over, the microphones unplugged, and the recommendations of various commissions finished and filed, it's anybody's guess how much will change or even begin to change. The charges against Goldman Sachs are difficult to prove, from what I've read, and the SEC's case against Goldman will be a hard one to win. So it's likely that no one from Sachs will face any consequences beyond having to sit through a Senate subcommittee hearing. They'll go back to their Barnum & Bailey world, and we'll continue paying the cost of the ticket for admittance into the tent and knowledge of the wonders therein.

Given that likelihood, it still remains to be seen whether Congress and the White House can get financial reform passed that prevents the scams like the one Goldman Sachs executive defended before the subcommittee, and protects the rest of us.

Put another way, it remains to be seen whether we'll continue to be played for suckers.

Regulatory Onanism

Terrance Heath — Fri, 23 Apr 2010 15:53:19 -0400

How, many people have asked since news broke about Bernie Madoff's $50 billion ponzi scheme, could regulators have let such a blatant criminal slip through their fingers?

We know, now.

The Securities and Exchange Commission is the sheriff of the financial industry, looking for crimes such as Bernard Madoff's Ponzi scheme, but a new government report obtained by ABC News has concluded that some senior employees spent hours on the agency's computers looking at sites such as naughty.com, skankwire and youporn as the financial crisis was unfolding.

"These guys in the middle of a financial crisis are spending their time looking at prurient material on the Internet," said Peter Morici, a professor at the University of Maryland and former director of the Office of Economics at the U.S. International Trade Commission.

"It's reckless, and indicates a contempt for the taxpayer and the taxpayer's interest in monitoring financial markets," Morici said.

…One senior attorney at SEC headquarters in Washington spent up to eight hours a day accessing Internet porn, according to the report, which has yet to be released. When he filled all the space on his government computer with pornographic images, he downloaded more to CDs and DVDs that accumulated in boxes in his offices.

Clearly, they already had their hands full.

Quite a few of them did. Another SEC accountant tried to access porn sites 1,800 times in two weeks, and had more than 600 pictures on his hard drive. Yet another even took the time to upload his own videos. Still another used a flash drive to get around firewalls, and deliberately disabled a Google filter to access these sites.

One employee even indulged his entrepreneurial urges.

Investigators found employees in separate offices operated private photography businesses out of the commission:

An employee repeatedly and flagrantly used Commission resources, including Commission Internet access, e-mail, telephone and printer, in support of his private photography business for several years.

The IG’s office recommended "disciplinary action up to and including dismissal." In turn, the report notes, "management suspended the employee from duty and pay for nine calendar days."

When asked about the report, Deputy Director for Public Affairs John Heine said, "In each of these [cases] there is some sort of response from the Commission. We don’t have anything to say beyond that."

(Turns out this isn't exactly a new story: ProPublica had it back in December 2008. The full report is here.)

Now, honestly, it's not the pornography that I have a problem with. It's that these folks were were smart enough to be hired to some pretty important positions, but not smart enough to know that you don't do your porn surfing at work. Or at least only under certain conditions. Like, if things are really slow at work, and there's absolutely nothing to do.

Maybe that was true for the SEC at the time. After all, there wasn't a crisis underway, like there is now.

Except that it wasn't quite that way. For starters, the SEC blew multiple chances to bust Madoff.

The Securities & Exchange Commission had several chances to uncover Bernard Madoff's huge Ponzi scheme dating back to 1992 but failed because of a combination of inexperienced staff, inadequate preparation, bureaucratic inaction, and the simple failure to ask the right questions. That's the theme of the executive summary of the SEC Inspector General's report on the fraud, released on Sept. 2. It's unlikely to make Madoff's victims—who lost billions of dollars in the scheme—happy.

"[D]espite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was running a Ponzi scheme," Inspector General H. David Kotz said in the report. "Had these efforts been made with appropriate follow-up at any time beginning in June of 1992 until December 2008, the SEC could have uncovered the Ponzi scheme well before Madoff confessed."

The investigation found that between 1992 and 2008, the SEC received six credible complaints that "raised significant red flags" about Madoff's operations and was also aware of two articles in business publications, published in 2001, that raised questions about Madoff's remarkably consistent returns. The SEC conducted three examinations and two investigations of Madoff during that time period, but either accepted Madoff's explanations or failed to follow up on questions and inconsistencies in the information the agency was given.

Six credible complaints? Raised "significant red flags"?

Three examinations? Actually it was five. Five times the SEC investigated Madoff and five times they missed it.

The SEC opened inquiries five times in a 16-year period. But in each instance, inexperienced officials, at times ignorant of other agency probes into Madoff, took his explanations at face value and did little to verify them.

Madoff himself told the inspector general that he was "astonished" that the SEC did not verify whether he was carrying out the billions of dollars of trades he claimed to be making after he supplied the agency with account details.

"The SEC never properly examined or investigated Madoff's trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme," the inspector general, H. David Kotz, concludes in the report.

The extensive number of contacts between the SEC and Madoff raises questions about whether the agency is capable of spotting and stopping other financial frauds. The SEC has said it doesn't have the resources necessary to oversee the exploding number of financial firms and can review many of them only once every few years. It became aware of Madoff's fraud only when he confessed to it in December.

One warning came from an SEC investigator, who smelled something rotten in 2004.

Genevievette Walker-Lightfoot, a lawyer in the SEC's Office of Compliance Inspections and Examinations, sent e-mails to a supervisor, saying information provided by Madoff during her review didn't add up and suggesting a set of questions to ask his firm, documents show. Several of these questions directly challenged Madoff activities that much later turned out to be elements of his massive fraud.

But with the agency under pressure to look for wrongdoing in the mutual fund industry, she wasn't able to continue pursuing Madoff, according to documents and two people familiar with the investigation, and her team soon concluded its work on the probe.

But she got redirected to investigate mutual funds, along with a dozen more of her colleagues.

Another warning came from Harry Markopolos in 2005, in the form of a 20 page memo.

And it wasn't just Madoff, either. There's Bank of America, too.

Our story starts on December 8, 2008, shortly before Merrill Lynch was taken over by Bank of America. Bank of America shareholders had already approved the merger. Merrill gave out $3.62 Billion worth of bonuses, or 22 times the size of the AIG's bonuses that caused such a stir. 36.3% of the money came from TARP funds and only employees making over $300,000 were eligible for the bonuses. Merrill's Compensation Committee determined executive bonuses before the disastrous Q4 earnings had been calculated.

This was a departure from normal company practices. Bank of America was aware of Merrill's intentions to award huge executive bonuses, but failed to tell its own shareholders prior to the vote. In fact, on August 3 they had released a proxy statement that Merrill wouldn't pay year-end bonuses before the takeover without consent.

Eventually the SEC was shamed into action. After months of investigation the SEC decided that it had built its case and approached Bank of America with a settlement offer that basically amounted to a slap on the wrist.

But then something amazing and unprecedented happened: the sitting judge, Jed Rakoff, demanded accountability and disclosure.

The judge wondered immediately why, given the "serious questions" raised in its complaint, the SEC wasn't going after more facts. If BofA and Merrill conspired to lie to shareholders about bonuses that had been agreed to when the merger was signed, then why isn't the SEC trying to figure out who is responsible? "Was it some sort of ghost? Who made the decision not to disclose [the bonuses]?" said Rakoff.

Judge Rakoff called the settlement a "contrivance", which allowed the SEC to appear to be a regulator, but doing nothing substantially. The SEC was only asking for a $33 million fine and didn't seek to punish any executives, or even to release their names. At least one Merrill executive got a bonus larger than $33 million.

And in the run-up to the crisis, its oversight was so non-existent that it was barely an afterthought.

Four years ago, the SEC made what appears to be a fateful decision. As ProPublica [1] and others have reported, the commission exempted major investment banks from limits on how debt versus cash they could have. After the change, the debt held by the firms soared. And many, including a former SEC official, have pointed to the change as one of the roots of the current crisis [2].

Today's New York Times explains exactly how the SEC came about its decision [3]. It’s not pretty. The paper zeros in on "a brief meeting on April 28, 2004"…

Only one commissioner questioned the proposal, noting "We've said these are the big guys, but that means if anything goes wrong, it's going to be an awfully big mess." (The Times helpfully posts the full audio [3] of the meeting.)

The proposal, which was quickly passed, also included a provision that would have allowed the SEC to get a clearer picture of just what deals the investment banks were making with the new leverage. But as the Times notes, "The agency never took true advantage of that part of the bargain."

The firms were only required to self-report their holdings. As for verifying the companies' numbers, the SEC did not exactly [3] make it job number one…

It becomes, in some ways, difficult to tell who the SEC regulators were actually working for. Like people who live with each other for so long that they start to resemble each other, the SEC and the banksters it was supposed to regulate during the Bush era look practically like family. So it's no wonder they missed Madoff. After all, he was family.

A top Securities and Exchange Commission compliance official who worked for the SEC when it found no problems at Bernard Madoff's firm in 2005, later began to date and married Madoff's niece, who was a compliance lawyer for the company.

A spokesman for Eric Swanson, who has since left the SEC, said Swanson "did not participate in any inquiry of Bernard Madoff Securities or its affiliates while involved in a relationship" with Shana Madoff.

The failure of the SEC to detect the alleged fraud carried out by Madoff, estimated by Madoff himself at $50 billion, has raised questions about the SEC's performance.

"The Securities and Exchange Commission failed the American people," said Senator Charles Grassley (R-IA).

Since 1992, the SEC has at least twice dismissed concerns about Madoff's firm, following complaints.

Call it complicity, call it collusion, call it a strange sense of loyalty, but at some point a choice what made. A choice not to regulate, but to busy themselves with something else, while disaster approaches for someone else. Much like Alan Greenspan, among others, ignored repeated warnings of the crash that finally came.

At some point, you realize that it took real, hard work to remain that clueless in the face of so many warnings.

Now, with the resurfacing of the SEC web porn story, it just seems like more of that "devout neglect" that is part and parcel of conservative governance.

It seems inherent in conservative philosophy to see disaster approaching, to know where and whom it will strike, and to simply stand out of its way. The problem is that the person stepping into that intersection, about to get mowed down, is all of us. Or at least the 99.2% of us who are not, have never been, and never will be members of the ownership society.

Even if that disaster can be averted, it shouldn’t be. That’s the heart of both the conservative love of deregulation and reluctance to intervene that makes economic disasters like this likely to happen, and to happen on large scales like the metastasizing subprime crisis, and on the small scale of millions of personal stories ranging from foreclosure to bankruptcy to never-ending debt.

There’s a motive for letting simply letting it all happen, though. It’s very simple. As easy as it might be to write off that kind of “devout neglect” to the plain old mean-spirited notion that survival — economic or otherwise — “is a matter of privilege,” the bottom line is actually the bottom line. None of this would have happened, or been permitted to happen, unless somebody — and not just anybody, but people already significantly privileged when it comes to economic survival — stood to profit from it.

In a sense, it's the same regulatory onanism that led to this crisis and it's consequences. It's the same as it ever was.

After all, Nero fiddled while Rome burned and the SEC… well, you get the idea.