What BP Was Hiding

Two years ago come April reckless shortcutting by BP and its partners in the Gulf of Mexico triggered a blowout of one of its deepwater wells killing eleven of those working on the platform and injuring 17 others. For roughly three months the well spewed crude oil into the Gulf. It was five months before it was capped once and for all.

Monday (02.27.12) the people of the United States will finally begin to get their day in court. The U.S. District Court in New Orleans begins what will be years of responsibility dodging and finger pointing by BP, Halliburton, Transocean, and some of the other players in this tragedy. Among the +/- 600 claimants there will be one more class of the ethically challenged, those who make false claims in an attempt to cash in on this awful event.

An event that we do not as yet know its full impact. Some environmental damage could play out for years. Some facts up to now hidden will come out in court. One shocker was disclosed as a part of the run-up to the trial. In the early hours of the first day BP managers estimated that the spill could dump 3.4 million gallons of crude oil into the Gulf every day. A number higher than the final US estimate by about a million gallons a day.

But instead of following the tried and true “Prepare for the worst and hope for the best” path, BP instead buried this estimate. Internal memos and emails released last week show that BP engaged in a frantic effort to keep secret their estimates of the potential damage of the spill and to browbeat the US Coast Guard into down playing it as well; despicable.

It will be years, two or three at least, perhaps another twenty before the claims are all settled. BP is trying to settle as many as possible before they get into court. They are looking to settle much as $20 billion in federal fines before the trial gets underway. There’s the much of the touted $20 billion that BP set aside early on to pay those (especially the little folks) who suffered financially from the spill and they could face more. All of these big numbers need to be viewed in light of the windfall BP and others enjoyed when the blowout triggered a spike in oil prices.

Keep in mind that this court date is just to determine financial responsibility. Yet to come –we can only hope– are the criminal charges that may be leveled at some of the entities and individuals involved. It is important to remember the horrific deaths and injuries sustained in the explosion, the fireball, and the crash into the Gulf that day in April are of much greater significance than any other part of this tragedy. The environment will heal. Financial loss will be recovered - or not. But those left in physical and mental pain, along with the families left without their sons and brothers, and fathers, and husbands, they will live with their loss for the remainder of their lives.

A Glimmer Of Justice

Last week (2.9), we finally got a deal for a few big banks to make a $25 billion down payment on what they owe America. You’ll recall that less than a decade after they conned Congress into dumping the Glass-Steagall Act passed in 1932 to protect Americans from reckless bankers, reckless bankers drove most of the world off a cliff. A cliff created through their relentless efforts to profit from packages of securitized mortgages. They lured naïve folks into mortgages the bankers and their cronies knew they couldn’t afford. When the bottom fell out did the bankers use the money we gave them 2008 to help those they had enticed?

Nope, but the alarm bells were set off by Hank Paulsen, plucked by George Bush from his post as CEO of Goldman Sachs –perhaps the most reckless and devious nest of bankers on the planet– to become Secretary of the Treasury. The Congress passed the $700 Billion TARP Act (largely crafted by Paulson) to save the banks. At the same time – unbeknownst to most of us until earlier this year– the Federal Reserve poured about ten times that much into the banks, interest free. The $25 billion –chump change for these banks– will help a few of the millions who owe more on their mortgages than their homes are worth. Others, pushed out of their homes erroneously may get a few bucks.

The deal, in the works forever, was held up by two State Attorneys General who refused to sign because the banks got protection against future prosecution. California AG Kamala Harris and New York’s Eric Schneiderman booted the get-out-of-jail-free-cards. Housing Secretary Shaun Donovan brokered the deal over Super Bowl week and last Friday (2.10) announced that 49 states, the Justice Department, and other Federal entities had signed onto the deal. Ally Financial (formerly GMAC), Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo, the biggest mortgage servicers, are coming up with the$25 billion.

It better be a down payment; the bankers received hundreds of billions from the American taxpayers. Up to now they have used our money mostly to return to the reckless risks that got us into this mess in the first place. An outcome Mr. Paulson could have forestalled, had there been any real conditions attached to the bailout bucks. But why would he? Could it be because Paulson had his hand on the tiller at Goldman while they were raking in billions selling crap (their term), all-the-while betting against their customers with the idiots at AIG? The same AIG we bailed out only to have Goldman suck up a ton of that bailout, collecting on the sure losers they hung on AIG.

Before sundown the day the $25 billion deal went public Schneiderman sued three big banks: Bank of America, JP Morgan Chase, and Wells Fargo, along with the MERS system. The banks set up and control MERS cloaking the foreclosure world. The banking entities and some of the individuals involved left the ethical line far behind in this display of unbridled greed.

A Return To Stability

Close to 3000 movers and shakers took to the world stage in Switzerland last week (01.25-29) for the annual World Economic Forum, commonly referred to as Davos. This year’s theme was The Great Transformation, Shaping New Models. And while there was much discussion on new models, most looked a lot like the model that emerged from the Great Depression and served America well for two generations. That would be the model we dismantled in the 1980s and 1990s.

As the doings began at Davos, Bloomberg released their Global Poll of more than 1.200 investors, analysts and traders who shared their thinking on the state of the economy. Surprising numbers; more than half agree with the Occupy Wall Street movement that income inequality harms the economy, harms growth. Seven in ten believe the banks have too much control over government. Two-thirds of the respondents think governments should pursue policies to tackle that issue.

A participant on the opening panel at Davos, Sharan Burrow, general secretary of the International Trade Union Confederation said, “If you’ve got a group that is too big to fail, what it means is that you are the biggest bullies on the planet. The financial sector has lost its moral compass.” More than 80% of the respondents to the Bloomberg study think banks need to be regulated so they’re not too big to fail.

 

About two-thirds see at least some truth in the argument that bankers’ actions are driven by greed and harm the economy. This is in line with studies showing that when executive pay scales escalate too far above the average employee in their company, it takes focus off what’s best for the company and moves it to what’s best for those at the top. When bankers start focusing on their pay, they forget their role in the community. They forget they are there to protect the funds the members of the community entrust to them. They forget that they are there to find local businesses that need loans to grow. They forget that they are there to help people in their community finance their homes. 

When it comes to the investment bankers on Wall Street, they get so focused on their paychecks that they forget they are there to help create capital. Instead they are busy devising ways to play high-stakes gambling games, all the while setting up their customers to take the fall if the bank’s bet goes south. Moral compass? There’s none to be found. While most business people and small businesses are striving to do the right thing every day, the Wall Street types have the morals of an alley cat.

The Worm In That Apple

A thorny aspect of business ethics emerges when we examine the outsourcing of work by American companies. Earlier this month (01.21.12) an in-depth piece in The New York Times examined the subject especially as it applies to electronics manufacturing. Apple was the centerpiece of the well-researched and balanced story. 

Reaching back a year into early 2011 they reported on a dinner the Silicone Valley élite hosted for President Obama. Each of the top tier executives was asked to bring one question for the President to answer. However, he had a question for Apple icon Steve Jobs: “What would it take to make iPhones in the United States? Why can’t that work come home?” President Obama asked. Jobs’ response was short and to the point: “Those jobs aren’t coming back.”

Surprisingly, the answer has less to do with the cost of labor in China where the iPhone is made and more to do with the availability of workers from those on the assembly lines to engineers who are trained and ready to go to work. China has huge industrial complexes with the technology and personnel available on short notice and that usually makes the difference. 

One company dominates this field. Foxconn Technology has dozens of facilities in Asia, Europe, even North and South America. Close to half of the electronics that fill our lives pour out of their factories. You name it, from Amazon to Apple, from Nintendo to Nokia, from Samsung to Sony and almost any other brand name in that game, Foxconn makes it.

One of their complexes in southern China, Foxconn City, is a picture of efficiency and productivity. Nearly a quarter million workers are at its command. Many live in Spartan barracks next to the factories, on call at a few moments’ notice. That’s where the picture becomes a lot less attractive. The workers, most of them young women, often feel trapped in an endless chain of 12-to 15-hour days.

A 2006 story in The London Daily Mail and other more recent sources detail the despair that leads to a high rate of suicide among these workers. A problem that Foxconn deals with by stretching nets between their housing units to prevent the workers from leaping to their death off the roofs of their barracks. The Daily Mail cites a 21-year-old from central China, a worker on an Apple assembly line whose 90-hour weeks paid her less than fifty bucks a month. The Daily Mail points out that allowing for inflation that comes to, “about half the wage weavers earned in Liverpool and Manchester in 1805.”

Ethically where does that leave Apple and all the rest of the big guys who turn to Foxconn and the host of suppliers surrounding its facilities, most with appalling working conditions by our standards? Should we blame Apple? Maybe we should look at those who demand nifty gadgets at unrealistically low prices. Maybe we should look in the mirror. Ponder that ethical enigma the next time you finger the toys in your pockets.

A Jolly Good Time

A British High Court Room saw the Murdoch media empire humbled as never before last week. It was the first of what’s likely to be many “Pay-Up Days” for Rupert and his minions. After years of denials and reported cover-ups, the Murdochs were passing out cash like Halloween candy. In carefully worded and vetted statements one potential lawsuit after another was settled, tens of thousands, even hundreds of thousands of pounds in many instances, plus legal and court costs of course. Lots of big entertainment names, political types and the occasional ordinary person who got caught up in their mess.

Two very significant factors stood out for us. One was new: News Group News, the umbrella entity for the Murdoch London based newspapers caught up in the hacking scandal, as much as admitted that their senior executives were involved. In a statement the lawyers for the victims said, “News Group News has agreed to compensation being assessed on the basis that senior employees and directors of NGN knew about the wrongdoing and sought to conceal it by deliberately deceiving investigators and destroying evidence.” 

While that falls under the usual legal cover, “doesn’t admit nor deny,” it’s pretty clear that “documents relating to the nature and scale of the conspiracy, a cover-up and the destruction of evidence by News Group” in the hands of the victim’s legal counsel, has Murdoch painted into a corner. It’s pretty clear that a culture of deceit is at the core of the Murdoch organization and that it seeps down from the very top staining every corner of his vast domain. 

The second thing that popped out for us is not new, but it may be the first time it has emerged in a formal legal setting. Apparently two of Murdoch’s gossip sheets, The News of the World and The Sun, had a field day with details of the back and forth that went on between Jude Law and his ex-wife Sadie Frost. Of special interest to those of us on this side of the pond is that Law had his phone hacked while he was at JFK Airport on Long Island. We had heard that before, but never in a legal setting. It’s important because the laws regarding hacking are very different in America. 

The Murdoch Empire is headquartered in the United States. The parent company, News Corp, is a Delaware corporation and fully subject to the laws of the United States. Rupert Murdoch is a United States citizen. The Murdoch Empire is largely in America. Murdoch moved into the US in the early 70s with one newspaper and soon followed up by founding the Star a trashy supermarket tabloid; adding the New York Post, not much above that. Then came television, motion pictures and The Wall Street Journal, most devoted to spewing his sensationalist trademark views of the world.

By hacking Jude Law in the United States, Murdoch has put it all at risk. There will be no carefully vetted settlement in this case. Like the ethically challenged at Enron, Adelphia and others in our recent past, the Murdochs may very well be facing jail time.

What’s Bugging America

A study by the highly regarded Pew Research Center provides insight into what is bugging Americans. Surprisingly it’s not the national debt, or immigration, which was the major issue in their last study done in 2009. In the Pew survey conducted in early December, income inequality leapt up about 50% from the 2009 study to be seen as America’s greatest source of tension. Two thirds of the respondents see the divide between the super rich and those on down the food chain as our major concern.

It gets more interesting when you look at the breakouts. As you might expect, the minorities, the poor, and the liberals are most likely to see inequality as the major cause of tension, but their scores were not up much from the 2009 study. The big jump came at the upper middle of the income ladder, 71% of those earning from $40,000 to $75,000 pointed to income inequality; that’s up more than 50% from 2009. Even the level of Republicans who see inequality as the number one issue is surprising, more than half, 55%.

More troubling, however, is the growing body of data indicating that opportunity to move up the ladder in the United States is in serious decline. The American Dream no longer tops the world. Canada and most western European nations now offer their citizens a better shot at that dream than we do. Among a number of studies one European study seems most comprehensive. Conducted by a group of scientists, it compares economic mobility across leading nations and we do not come off well. It shows that 40% of Americans born into the bottom 20% of our economy live out their lives there. Compare that to England at 30% and Denmark at 25%. Only 8% rise from the bottom fifth to the top fifth compared to 12% of the Brits and 14% of the Danes.

At the other end of the scale –the top of the economic pile– far more Americans born to wealth remain there than in other nations. Our absence of mobility is a threat to our nation. A threat seen not only by those on the left, but by leading right leaning players, Rick Santorum and Paul Ryan both expressed concern.

Economic inequality and economic mobility are linked at the hip. A tax code that favors the wealthy combined with a dramatic shift in taxing inequality have left those on the bottom and in the middle giving up a greater share of their income to support America. Billionaire Warren Buffett has been pointing to the flaws in our system for several years. We should all find it ludicrous –as he does– that he pays a lower share of his income than the lowest paid employee in his company.

We can’t keep the American Dream alive if we allow inequality to rule. We cannot  ask the middle-class and those on the bottom of the economic ladder to devote a greater share of their income to support needed services than we require from the rich. It’s not fair; it’s ethically abhorrent.

Rupert The Humble

New Year’s Resolutions showed up on Twitter in Rupert Murdoch’s name. At the same time a Twitter stream attributed to his wife Wendi turned out to be a fake. A News Corp spokesperson has confirmed that Rupert –we’d guess with the help of one or more of his minions- is actually tweeting. Not surprisingly it took less than a week for him to pick up more than a hundred thousand followers. That is pretty impressive, until you compare it –as at least one pundit did- to the vast media array at his disposal that regularly spews his views.

Associated Press reports he tweeted resolutions to “try to maintain humility, diet and to stay curious.” Humble is not a term most would apply to the media mogul. Rupert falls more into the overbearing arrogant camp. After the first few days his tweets began to fall into promotional efforts for his stable, especially The Wall Street Journal.

Then he jumped into the Republican primary race, posting, “I can’t resist” and “Good to see Santorum surging in Iowa.” While it’s no surprise that Murdoch is supporting someone on the extreme right, most media executives tend to keep their political views to themselves. While Murdoch had to become an American citizen to own US broadcast properties he still thinks like a Brit, where the media tend to be more involved.

It will be interesting to see if the Murdoch Twitter stream is just a passing fancy, or if they plan to use it as part of a strategy to deal with the very challenging year ahead. The major looming threat to the Murdoch clan comes in the form of the ongoing Leveson Inquiry in London. A number of major players from Murdoch’s Fleet Street organization have been arrested. So far they have been tight lipped and deny any wrongdoing. Worse, Rupert’s son, James, the titular head of much of the empire, seems to be caught up in the phone hacking scandal; an ethical disaster and perhaps a criminal disaster as well.

It will be interesting to see if the tweets from Rupert the Humble take a turn as all this plays out.