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Where Were the Regulators? May 10, 2010

Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, politics.
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Via  Robert Reich:

What do oil giant BP, the mining company Massey Energy, and Goldman Sachs have in common? They’re all big firms involved in massive plunder. BP’s oil spill is already one of the biggest and most damaging in American history. Massey’s mine disaster, claiming the lives of 29 miners, is one of the worst in recent history. Goldman’s alleged fraud is but a part of the largest financial meltdown in 75 years.

All three of these companies are also publicly-held, which means that much of the financial costs of these failures will be passed on to their shareholders, many of whom are already watching their stock prices plummet. Prominently among those shareholders are pension funds and mutual funds held by people like you and me.

That may seem fair. After all, shareholders benefited when BP made big profits extracting oil without paying attention to a possible blowout, when Massey Energy got fat earnings from its careless coal mining operations, and when Goldman Sachs did wondrously well for its own stock holders by allegedly defrauding others. In fact, it was pressure from their shareholders seeking the highest possible returns — and their executives, whose pay is linked to the firms’ share performance — that led all three companies to cut whatever corners they could cut in pursuit of profits.

But profits aren’t everything, which is why we have regulations that are supposed to be enforced. So a key question in each of these instances is: Where were the regulators?

Good question. But, of course, if we believe markets know best so we don’t need government meddling in business affairs, we will get the regulators we deserve. That has been the prevailing philosophy for the past 30 years.

When shareholders demand the highest returns possible and executive pay is linked to stock performance, many companies will do whatever necessary to squeeze out added profits. And that will spell disaster – giant oil spills, terrible coal-mine disasters, and Wall Street meltdowns – unless the nation has tough regulations backed up by significant penalties, including jail terms for executives found guilty of recklessness, and vigilant enforcement.

Reich is right. We need strong government regulations. But that means we have to learn once again to trust government. And that means we can’t put people in charge of government agencies who think government is the problem.

No one in their right mind would choose to go to a doctor who did not believe in the power of medicine to heal. Yet, Americans persistently elect government officials who don’t believe that government can be effective.

Clearly, we are often not in our right minds when we vote.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

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Comments»

1. Question Master - May 10, 2010

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2. Question Master - May 10, 2010

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3. Asur - May 11, 2010

Why would anyone not trust the government? People fear that members of government will look after their own interests rather than those of the general populace…but this is already the agenda of every incorporated entity on the planet. It’s not something sneaky, it’s simply the very reason they exist.

So, why not trust government? When you only have two options, trusting the one that might sell out your best interests over the one that assuredly will is a no brainer.

4. John - May 11, 2010

This blog is interesting because the great thing about America is the freedom to start your own business and many people get angered when there are too many enforcements because this prevents people from starting their own business. At the same time I believe we have to find a medium between the regulators and how strict the laws actually are. In the examples that are given in this post this is what will continually happen if we don’t find that medium. Stockholders always will put pressure upon companies to do well; thats why they are investing money in that company. But at the same time the stockholders don’t care about how they get the profits and if the company makes a profit by sliding by some regulations that is okay to them. This is fine until something like an oil spill happens which is the direct fault because of to much pressure and sliding by regulations and the stock tanks. So at the end, unless people are shorting the stocks inevitably the stock ends up tanking. I believe that regulations should be a lot more strict and enforced and especially now when times are getting desperate for a lot of people.


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