(HOST) Commentator Geoff Shields has been thinking about our ability to anticipate – and respond to – crisis situations.
(SHIELDS) Recently, the United States has been rocked by two major crises – the catastrophic oil leak in the Gulf of Mexico and the catastrophic financial crisis brought on by the mortgage bubble.
These crises share a lot in common:
In both cases there was horrific overreaching by greedy business interests. In both cases there was lack of government action to regulate risky behavior.
The gulf catastrophe should have been anticipated. After all, the government-subsidized drilling was so deep in the ocean that human beings could not reach the well-head. Such inaccessibility cries out for tested emergency plans to be in place.
Yet, despite the need for extra safeguards, even the existing meager licensing requirements were not enforced. A recent investigation found that some of the government’s employees charged with enforcing deep sea drilling safety have been having affairs with oil company employees and have been accepting a variety of expensive gifts. In return, our government inspectors allowed drilling to go forward without required permits.
As for the mortgage crisis, it is easy to understand that negative interest loans with no money down and no credit checks were likely to end in default. Yet, politicians were hungry for the financial support of home builders. The rating agencies we expected to flag bogus credit claims accepted millions of dollars in fees to give AAA ratings to mortgage backed bonds which turned out to be worthless.
Egged on by the Bush administration’s desire for more economic growth, the Federal Reserve Bank failed to rein in the abusive Wall Street excesses, which led to the economic and market collapse.
So? What lessons can we draw from these events?
To begin with, we can acknowledge that greed in both cases led to disaster; the financial incentives leading to both catastrophes led to highly irresponsible behavior by the business community.
Despite this irresponsible private sector behavior, however, both the mortgage disaster and the oil leak disaster could have been prevented by reasonable regulation and ethical vigilant oversight by the government.
Requiring a 20% down payment and fixed-rate mortgages would have prevented the mortgage catastrophe.
Requiring that deep sea drilling be done only with fail-safe shut off systems in place would have prevented the worst United States ecological disaster of our lifetime.
We must insist that our government prepare effective regulation which will protect us. We must insist that these regulations be enforced with integrity. If we don’t, there will be more financial and ecological disasters, and we will have only ourselves to blame for failing to insist on effective regulation.