zenith

We, as competitive monkeys, did not evolve to deal with risk on large scales well. We understand the risk a lion poses (get eaten) or a drought poses (no food) but we do not deal well with large, abstract risk. We dismiss it as a “1 in a million phenomena.” This is a well studied phenomena in computer security: it is difficult to get buy-in from those with the money in security without external pressure like, say, being hacked.

Understanding risk is important to understanding what happened in the Gulf and also what happened on Wall Street. For the Gulf, the issues with dealing with risk are simpler to understand: in a straight up but difficult engineering project quantizing and assessing risk is a well-known process, but dealing with mitigating risk is a matter of money. One must pay for the extra layers of protection or reinforcement. Even if risk is properly assessed, it costs money to mitigate the risks. Spending the money to mitigate the risks cuts into profit margins and adds to project overheads. BP made business choices over engineering choices to maximize profits at the expensive of mitigating risk. Destroying the entire Gulf of Mexico is a difficult consequence to conceptualize — it looks awful big! have you seen it? — so the risk of something that catastrophic is pulled off the table and labeled as “ridiculous.” Engineers are over-conservative whiners, anyway, when money can be made.* Risks were taken with the implicit assumption that if something did happen, the US would step in and BP’s liability would be capped.

The Wall Street risk is similar to the Gulf although the damage is in numbers instead of the environment. The risk of actually damaging the world economy is too large of a risk to contemplate. It cannot possibly happen! So we can over-leverage (Lehman Brothers) or create huge bad investments (Goldman Sachs) or insure all these bad investments (AIG) and nothing bad can happen! Because the numbers may be large but they certainly are not as large as the entire economy. Besides, the FDIC insures depositors so what does it matter if a proprietary trading desk loses everyone’s money? Sure the bank might close and the trader might lose their job if things go bad but look at all this money to invest!

Risk is calculable; most risk is known on a certain level. Risk is understood. But risk pays off in large financial reward, so humans wired to seek out large financial reward will pursue the risk. And they have found a way to fob off the downsides.

The core problem we have right now, today, is that risk is a throw of the dice and the system is rigged so if the dice come up snake-eyes the results are socialized. The bigger the risk, the more the downsides are subject to being covered by the Government. “Privatize the profits and socialize the risk.” When the risk is socialized corporations, constantly in the pursuit of profits, will negate any downside to risk to maximize their returns. This is what a corporation does. Without external pressure for culpability for the downsides of risk, a corporation will never mitigate the risk (expensive) in return for profits. If the corporation is not responsible for the downsides of risk, they’ll just rampage.

This is where the Government has a role to play. The Government can do precisely three things to reign in this behavior:

* Regulate. The Government can enforce a standard playing field with a certain floor of risk mitigation in return for safety and assurance. In return, the Government gives its stamp of approval.

* Litigate. The Government can sue in a post-mortem after disaster to recoup the funds used for cleaning up disaster after risk failed to pay out.

* Regulate AND Litigate. Force corporations to adhere to basic standards and then sue for liability depending on how may of these standards were met.

In an ideal world, we want the Government to do #3. We want the Government to be a licensing and auditing body that forces corporations to a certain level of responsibility and litigate for damages to recoup costs post-disaster. They are supposed to be a third party, not-for-profit, objective body that says, “You do X or else.” Today, for these “Too Big to Fail” institutions, we have none of these.** It’s cheaper to lobby/bribe than it is to comply to regulations, and it is cheaper to pay out on lawsuits than apply safety standards to mitigate the risk. Government is not properly funded with auditors to audit everything that needs auditing. Regulations have been continuously relaxed over the last thirty years.

We should be pressing the Government to enforce the same standards on everyone:

* No one is too big to fail, not even enormous banking institutions or car companies or oil companies.
* Assume a “you break it you bought it” mentality.
* Force corporations to build walls between “risky” business practice and routine business practice.
* Fund Government auditing with teeth.

I don’t think we’re going to do any of these because we, as Americans, are so wrapped up in the concept that a lack of regulations == jobs and short term profits that we cannot get off the mark — and it’s simply not true. It’s a PR job done by the corporations.

The core problem is risk. We need to start having a real conversation about risk across the board. It’s an abstract subject but we’re not having it so the big corporations are being allowed to walk away with their risks still being socialized.

* Engineers who are trained to be paranoid doubly-so.
** Small to mid-sized companies are regulated up the wazoo. Don’t get me wrong. It seems that the bigger you are, the less the regulations mean to you because you can cover the costs of the inevitable litigation by finding the change in the seat cushions and you can afford a huge PR media buy to cover your butt.

I watched Joe Barton yesterday, live, kowtow to BP. It was not a tossed off comment from a politician caught on a live mike. It was an eight minute long apology on live TV when he went, in some detail, on how he felt the President was giving BP a “shake down.”

My instant reaction was to be completely appalled. And thus, I made a comment.

Later I realized the man was simply coughing up the party line and not a new party line for any politician in America. His sin was not to have an original thought — he did not have an original thought — but to accidentally tell truth in a prepared statement on camera. He felt he would have sympathy and cover from the chattering classes. Isn’t this what they all say?

His sin was to say out loud what we already know: these people posing for the camera and giving us a bit of political theater are all bought and sold by corporations. If their patronizing corporation should suddenly die due to, say, killing off a few States we may or may not have been using* and a chunk of Ocean we sort of liked, then said politician is out of a job. And Joe Barton is very sad indeed because now his corporate masters will not have the cash on hand to pay him. Very sad. He is very, oh so very sorry. Especially as his main backer owned a 25% stake in the well now gushing into the Gulf. That $20 billion escrow fund — not even paid out at once but over years and not even compelled but sort of a gentlemanly agreement! — means he won’t get his payoff and his golf junkets.

The “small people” comment from the other day also told us what we already knew: we’re in a war between Corporations and Democracy. And the Corporations are winning. They control it all. They have managed to get rid of the regulations that may have capped profits and kept people safer. They have pursued profit to the detriment of entire countries — Greece is never going to climb out of its hole. They get what they want when they want it. And here is this guy making it plain to us all just how much he’s in the pocket of the very people he is supposed to be overseeing.

Democracy is losing. Freedom is losing.

People are very tightly controlled. We have to throw out bottles and be subjected to searches at the airport. We have road laws. Employers can read our text messages and emails on the job. And because we are afraid of terrorists we are even more controlled than before — the government can tap our phones, sniff our transmissions, and not even bother to read us our Miranda rights. Terrorism! Terrorism Terrorism Terrorism! If you don’t like this, you’re with the terrorists!

Corporations, though. If we try to hold a Corporation’s feet to the fire, especially something as filthy and polluting as the oil industry, it’s Socialism. Regulate health care? Socialism. Suggest cap-and-trade or carbon taxes? Socialism. Suggest we should get rid of the proprietary trading desk or regulate derivatives? Socialism.** Socialism, socialism, socialism. Don’t control the free market because it is good and perfect and never does anything wrong and self regulates and oh, did you just lose your house and you cannot get health care? And were you in the Florida panhandle and now you’re covered in oil? Sucks to be you. Because if we regulate Corporations we lose our freeeeeeeeeeeeeeeeeeeeeeeeeedoms!

The corporations are winning and to prove it, a corporation vaporized some States through malfeasance and then used their puppet Congressman to demand an apology for being mean to them. We gasp! The truth, it is an ugly beast.

The only good thing about the Deepwater Horizon spill, the only silver lining, is that cover it gives the the Government to fight back. A teeny tiny bit.

Funny, I wanted to talk about this neat graphic about how energy in the US is used and wasted and how changing to wind power does nothing about the use of oil in the US but I have gotten myself way off topic.

* Are we using Alabama? Did anyone keep the receipt?
** These cries of Socialism are also paid for by Corporations.

“Words, Words, Words.”
– Hamlet Act 2, Scene 2

I wanted something else out of Obama’s address yesterday. And I’m not certain what precisely. I felt like he was reciting my blog. All the things I wanted was there:

- Hanging the spill around BPs neck like a big, fat, decaying albatross.
- Making it clear that we are past Peak Oil and we have an Issue.
- Making moving to the new source of fuel a point of national pride/Apollo Program-ish.
- And etc.

Here’s the rub. I’m just some jerk who writes on a blog. I can spit out all these things I would like to see — the primary one using this horrible disaster as our “Sputnik” moment to give the entire United States a big jolt of realization that we are losing. Barry is not a blogger. He is President of the United States and I would like something more substantial than words.

I walked away feeling like that’s all we got here: words.

I have been trying not to add my voice to the chorus of “Do Something, Dude” because I know damn well the man is a law professor and now a petroleum engineer but I heard nothing but quibbling pass his lips. I wanted to hear the words “carbon tax.” I wanted to hear that the US is going to start taking over operations because BP is obviously worthless. I wanted to hear something, anything specific. Something to hold on to. Something real.

I know the White House is trying desperately to avoid the Carter “Malaise.” But I want to shake them until beans fall out. The Oval Office is hard core. Why not use the opportunity?

I shake my tiny fist.