Oil In The Gulf and Another Dysfunctional Federal Government Agency

Several weeks ago we reviewed reports and an investigation by Securities and Exchange Commission (SEC) auditors that found numerous cases of SEC management personnel, some at high levels of management (earning over $200,000 a year), using their government issued computers on work time to cruise the Internet looking for pornography. Not only were they searching for pornographic material, they were downloading voluminous amounts of smut to their computers and discs. These activities, according to the auditors occurred before, during and after the financial markets and the economy crashed, dire situations that SEC personnel might have helped avoid if they had been doing their job properly.

Not to be outdone, we now apparently have another dysfunctional Federal agency being identified, this one associated with the massive Gulf Of Mexico oil spill. Matthew Daly of the Associated Press published an article today which highlighted a new government report, from the Inspector General of the Interior Department, alleging that Federal oil drilling employees have been accepting gifts and jobs from the industry that they are supposed to be regulating. The following are direct quotes from Mr. Daly's article:

• An inspector for the Minerals Management Service (MMS) admitted to using crystal methamphetamine and said he might have been under the influence of the drug the next day at work.
• The report cites a variety of violations of Federal regulations and ethics rules at the agency's (Minerals Management Service) Louisiana office.
• Minerals agency employees move between industry and government. While no specifics were included in the report, "we discovered that the individuals involved in the fraternizing and gift exchange - both government and industry - have often known one another since childhood." Their relationships took precedence over their jobs.
• The report follows a 2008 report: that decried a "culture of ethical failure" and conflicts of interest at the minerals agency.
• Several employees cited in the report have resigned, were fired, or were referred for prosecution.
• The report said that employees from the Lake Charles, La. MMS office had repeatedly accepted gifts including hunting and fishing trips from the Island Operating Company, an oil and gas company working on oil platforms regulated by the Interior department.
• Taking such gifts "appears to be a generally accepted practice."
• Two employees at the Lake Charles office admitted to using illegal drugs, and many inspectors had emails that contained inappropriate humor and pornography on their government computers (My observation: there's that pesky Federal employee pornography connection again).
• One MMS inspector conducted four inspections of Island Operating Company platforms while negotiating and later accepting employment with the company.

My goodness, how bad does it get? We are looking at a massive bill for the cleanup of the current spill and massive ecological damage and the Federal employees that should have been protecting us are on industry sponsored vacations, using drugs, working the pornography angle just like the SEC, and obviously putting themselves in a conflict of interest position when they are working and inspecting for the government while they were negotiating for a job from the very people they should be riding herd on. Disgusting. The interesting notation in the report is that some employees had actually been referred for prosecution. You know it is bad when the government cannot ignore your sins and actually wants you to be prosecuted. And this behavior is just from 2000 through 2008, the current Interior Secretary has called for an update to the investigation to bring it up to current time.

These transgressions did not just happen this month. They apparently have been going on for a long time (remember, the report form the inspector general covered the 2000 - 2008 timeframe) and those in upper echelons of the Interior department and on the Congressional committees responsible for the oversight of these functions did not nothing to stop the transgressions and sloppy, and possibly illegal activities. Again this is a prime example where Step 34 of "Love My Country, Loathe My Government" would come into play. It would remove the politicians from the responsible committees for dereliction of duty and replace them with other, hopefully better qualified members, of the political class. There must be accountability for these atrocious Federal shortcomings and removal from their committee posts would be a good start. At the same time, somebody high up in the Interior Department needs to be fired for allowing this kind of behavior to go on for so long, behavior that probably contributed to the lax regulatory environment which resulted in the current oil spill.

Step 1 from "Love My Country, Loathe My Government" also comes to mind since while it calls for year over year reductions in the size of the Federal government, it also calls for a ground up, zero-based review of every government function, entity, and budget. This type of ground up approach might prove useful in identifying poorly performing organizations, rampant pornography habits, and obvious conflicts of interest.

On a somewhat related note, a new report today from the National Highway Transportation Safety Board (NHTSB) now estimates that up to 89 Americans may have been killed from faulty Toyota vehicles. This was another case where government regulation was a failure. We covered this situation several months ago when it was reported that NHTSB auto safety personnel had opened numerous, formal inquires into Toyota vehicles in the past decade or so but all of the investigations had been terminated quickly, with no safety or recall action issued. It was not until it became obvious that there was a problem, i.e. people were dying, that some action was taken. Thus, here are three examples, SEC, MMS, and NHTSB, of Federal entities not doing their jobs. The only difference is that they were responsible for different facets of our lives and so far, it does not appear pornography was a factor in the NHTSB (at least so far).

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Financial Market Reform Legislation - Another Failed Political Class Action

As a result of the recent economic crisis and financial market meltdown, Congress and the Obama administration have been trying to craft a law that reforms the financial markets so that we do not have another meltdown in the future. Without even reading the proposed legislation, I can promise you that it will be a failure. However, before I prove it, lets review some numbers:

• Taxpayer cost to bailout Fannie Mae and Freddie Mac SO FAR: about $145 billion and counting. The Obama administration has publicly stated that it will continue to back both organizations until at least 2012 regardless of their losses. (source: Business Week, May 17, 2010 issue and other sources)
• This bailout of Fannie and Freddie has cost the taxpayers about $7 billion a month, about $318 million a day, and about $40 million an hour since the bailout began.
• Fannie Mae stock price in 2007 = about $70, Freddie Mac stock price in 2007 = about $65.
• Fannie Mae stock price today = $.96, Freddie Mac stock price today = $1.21. Thus, both entities have destroyed over 98% of their shareholders' value in just two years. This is the market talking and putting a value on their operations, a valuation of near zero.
• According to Business Week, both organizations now hold $340 billion in "non-performing" (i.e., worthless) assets.
• Despite their incompetency, both organizations now basically control the entire $5 TRILLION mortgage market in this country, making it almost impossible to get a mortgage without their help.
• The Congressional Budget Office estimates that keeping both organizations alive will cost taxpayers $389 billion between 2009 and 2019, far exceeding any other bailout, including AIG, from the bailout era. This comes out to a per household average cost of $3,400 per household, $3,400 each household does not have to spend on expanding the economy and generating jobs.
• A lot of their problems were started in the early 2000s, according to the Business Week issue, when they started to purchase billions and billions of dollars of subprime mortgages and packaged them as securities. As we all know, the primary reasons for the economic collapse was the dangerously risky subprime securities that were sold in the market, of which these two government agencies were the biggest offenders.
• Their numerous accounting scandals through the years are too numerous to list here but most were monumental and potentially criminal.

Let's review: two government agencies are leaking great amounts of money hourly that the Obama administration says the U.S. taxpayer will gladly pay or "back stop" for at least another two years. These agencies have never had decent accounting procedures but now control the entire American mortgage market. These agencies destroying untold billions of dollars in shareholder value in a very short amount of time. These agencies were at the center and are primary causes of the economic collapse we are still living through.

Given this atrocious performance, you would think that the financial reform legislation before Congress is heavily involved in getting this runaway disaster under control. It is obvious that Fannie Mae and Freddie Mac were root causes of the financial meltdown. But, no surprise here, there apparently is not part of the legislation that will address this root cause problem. All of the focus on financial reform is elsewhere, namely the banking industry, most of whose players have already paid back their bailout money or who never received bailout money to begin with. The largest recipient, Fannie and Freddie, who have no chance of repaying the taxpayers, are not included in the reform bill.

Anyone who reads this blog knows that if you do not identify and quantify the root causes of a problem you have no chance to solve that problem. Just like with health care reform, the political class has not taken on the root causes and thus, I can confidently say that this legislation will be a failure.

Don't believe me, consider some quotes from the Business Week article:

• John McCain, U.S. Senator: "..like declaring war on terror and ignoring Al-Qaeda."
• Craig Pirrong, professor of risk management at the University of Houston: "Fannie and Freddie are the poster children of the moral hazards of government guarantees - even implicit ones."
• Phillip Swagel, Treasury economist under the first President Bush: "They are now being used as a conduit for the executive branch to spend money for policy purposes without having to get a vote and without transparency."

What a mess. The obvious question that comes to mind is why isn't the political class addressing this root cause? I have a number of theories:

1) Fannie and Freddie have been big contributors to politicians' campaign re-election efforts. Downsizing them or eliminating them would dry up a set of funds that they use to stay in office. This is especially true of the Democrats who are the biggest recipients of the donations from these two government agencies (ponder on the absurdity of that statement - government funded organizations who take taxpayer money and donate it politicians!) Of course, if Step 6 in "Love My Country, Loathe My Government" (allow only individual citizens to contribute to election campaigns), Step 39 (term limits), and Step 36 (require all politicians to take and pass a course in economics before serving) were in place, a lot of this issue would go away.

2) The political class does not not know how to fix the problem of Fannie Mae and Freddie Mac. Given that they rarely fix any other problem in this country, this theory has a high probability of being true. That is why term limits and dumping all incumbents in November is important, we need new blood and new leaders that are smart enough to fix these types of problems.

3) The scariest theory is that since these two entities control the mortgage market, without them the recovery may take longer than expected if they are not backing up housing loans. the problem with this theory is that it just prolongs the root cause and we continue to waste billions of taxpayer dollars every month keeping these two terminal patients alive.

4) The last theory is based on comments by two Democratic Senators who are pushing this bill, John Warner and Chris Dodd. Both have said that Fannie and Freddie's problems will be addressed next year. More absurdity. They are the biggest problem, why not address them first? They are costing the American taxpayer the most money, billions of dollars, why not fix them first? Could it be that the political class does not want to shut off the campaign donation spigot until after the November election even though at $7 billion or so a month, it will potentially cost the American taxpayer over $80 billion to wait another year?

Again, I repeat, what a mess. I do not know what theory or combination of theories above are the cause of the inaction but I do know this: without addressing the root cause of the problem, Fannie and Freddie, we will not solve the problems inherent in the country's financial markets.

Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Obama's Socialism Vs. Freedom and Capitalism and Efficient Charities - Only One Can Survive

Recently, President Obama has been pontificating that maybe some Americans make too much money. This flies in the face of the American tradition of freedom, capitalism and allowing each individual to work as hard or as easy as they want to achieve their individual dreams. Also, it is just plain stupid socialism for any number of reasons.

First, recall that the very rich in this country pay more than 70% of the taxes to the Federal government, allowing the rest of us "non-rich" to pay less in taxes. If the rich make less, and government spending does not go down (unlikely to go down under this administration) the missing tax money has to come from somewhere.

Second, when you inhibit peoples' ability to make more money for working harder and displaying more initiative, the country and society is likely to advance less slowly. Why bust your butt for some faceless government bureaucracy that will just take away the fruits of your brain and labor? Too much money is a relative term to every individual, you cannot have a politician or group of politicians deciding that for you. It is impossible to do and just restricts individual freedom.

Third, consider the following real life examples of rich people behavior:

• Actress Sandra Bullock has contributed one million dollars apiece to the Red Cross for 9-11 needs, tsunami rescue efforts, and Haiti's earthquake survivors. She has also donated many thousands of dollars to a Hurricane Katrina ravaged High School in New Orleans.
• Angelina Jolie and Brad Pitt have donated millions and millions of dollars to numerous charities, with just their 2006 total charitable donations exceeding $8 million. They have also donated $1 million to Doctors Without Borders and $1 million to Global Action For Children. They have also have been involved in rebuilding New Orleans and Ms. Jolie has served on any number of United Nations charity efforts.
• Tiger Woods and his father, started the Tiger Woods Foundation several years ago to support youth education and youth activities. Regardless of what one may think of Mr. Woods private life, after the recent press reports, his foundation has been successful in supporting the youth of America.
• In June, 2006, famous investor Warren Buffet donated 85% of his wealth, at that time estimated to be about $37 billion to a handful of charities including the Bill and Melinda Gates Foundation.
• Speaking of the Gates Foundation, it has been involved in numerous causes around the world including vaccines and immunizations, HIV research, infectious and tropical disease research, micro financing in poor countries, anti-poverty programs, green agriculture in Africa, national disaster relief, United States libraries, and education.

It is highly doubtful if these people would have been able to be so generous and would have positively touched so many people if someone like Obama had decreed that they "made too much money." In a cost benefit analysis, there would be no doubt that the efforts, funding, and visions of these people above and other rich Americans (go to www.looktothestars.org to see detailed information on how other rich Americans waste their excess money on worthwhile charities) do much more good with far less money than the wasteful Federal government does with the over three TRILLION dollars it spends every budget year.

You cannot have it both ways. Either American capitalism continues to provide the tremendous earning and growth opportunities it has traditionally done, supporting multi-billion charitable efforts, or Obama types introduce a socialism into the job market, stunting earnings potential, slowing down innovation, and causing the money to dry up for worthwhile and efficient causes for the needy, both here and around the world. We all know that the political class would never be able to duplicate the good deeds and efficiency that Bullock, Jolie, Pitt, Buffet, the Gates and other lesser known affluent people contribute to society. Freedom and capitalism and incredible charitable work are all linked together, break one link and the whole process crashes.


Our new book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Faulty Acceleration Problems - Who Is To Blame: Toyota, NHTSA Or Congress?

As most of you probably know by now, Toyota is in the middle of a massive recall of its autos around the world to fix faulty break and unexpected acceleration problems on all of its brands (Scion, Toyota, Lexus). There is really no doubt that a problem exists since even Toyota executives have admitted to a problem (plus the fact that they are fixing an untold number of cars for no cost to the owner kind of settles the point that something is wrong.) At a Congressional hearing today, a Lexus owner told about her harrowing experience when her Lexus accelerated to almost 100 MPH and for several minutes she could not slow down or stop the car. Somehow she eventually regained control before a crash and serious injury occurred. Something is definitely wrong.

So at least Toyota is to blame for the problems? But does the blame stop there? Consider some information from an article in the March 1, 2010 issue of Business Week concerning problems with Toyota vehicles:

• In 2004, the National Highway Traffic Safety Adinstration (NHTSA) opened an investigation into complaints that 2002 and 2003 Toyotas had unanticipated acceleration problems. Some of these complaints arose as a result of crashes due to acceleration problems. The investigation was started in March but closed by July with no action taken.
• In late 2005, more complaints of unintended acceleration problems caused another NHTSA investigation to be opened. It was shut down just a few months later in January, 2006 with no action taken.
• In August, 2006, another investigation was started when more complaints were received about Toyotas from the 2002 through 2006 model years having acceleration problems. That investigation ended in April, 2007 with no action taken.
• In 2008, still another NHTSA investigation was opened when there were over 475 complaints of Toyota Tacoma pick up trucks having acceleration problems. Eight months later the investigation was closed down with no action taken.

A few observations:

• Since everyone today, including Toyota executives admit there is a problem, how come the NHTSA launched eight (the four listed above and four others not listed) formal investigations in just an eight year span and came up with nothing?
• The problems appear to have covered at least eight model years, various car models and the Tacoma truck. Did not anyone at NHTSA think there might be a systemic trend here, multiple years, multiple models, same company?
• The Business Week article listed in detail the four formal investigations above since they were each handled on the Toyota side by by two Toyota executives that used to work at the NHTSA and who look to have been the main interface between Toyota and the NHTSA investigators. According to a quote in the article by Joan Claybrook, an auto safety advocate and former NHTSA administrator, "Toyota bamboozled NHTSA or NHTSA was bamboozled by itself. I think there is going to be a lot of heat on NHTSA over this." The "this" she refers to is the possibility that Toyota got the kid gloves treatment because of the past connections and possible influence that the two ex-NHTSA Toyota executives handling the investigations had with friends still at the NHTSA. Can you say conflict of interest?

In any case, it is apparent, at least to me, that the NHTSA is also very much at fault in addition to Toyota. They had hundreds of cases of faulty acceleration problems at their disposal, they opened up eight investigations but found not problems and took no actions, and they may have listened to ex-NHTSA employees who wrote reports to the NHTSA stating nothing was wrong ("No evidence of a system or component failure was found and the vehicles were operating as designed." Quote from Toyota in 2005) The agency is at the very least mismanaged, incompetent, or too industry friendly.

Behavior like this in the real world, outside of government, would get people fired from their jobs. There have been no reports that anyone from NHTSA has been fired for completely missing this albatross. This is the quality we get for paying our tax dollars.

And finally, may favorite party in many of these escapades, Congress and the political class. As mentioned in "Love My Country, Loathe My Government," have you noticed how in just about every pick screw up involving the government (in this case the NHTSA), Congress only gets involved after the disaster happens:

• Congress holds hearings on FEMA incompetence AFTER Hurricane Katrina devastates New Orleans. New Orleans is still a wreck in many respects.
• Congress holds hearings AFTER the subprime mortgage meltdown. Too little, way too late to do anything.
• Congress holds hearings AFTER Bernie Madoff rips off investors for billions of dollars. Too little, way too late to do anything.
• Congress holds hearings AFTER it is found that military hospitals handling Iraq war wounded are a disgrace. The biggest military hospital, Walter Reed, is less than ten miles from the Capital Building but no politician bothers to take a visit to see how things are going.
• Congress holds hearings AFTER the 9-11 attacks. They cannot address the problem and require an outside commission to come up with security recommendations.
• Congress holds hearings AFTER it is found that toys from China may have been produced using lead paints which is a dangerous toxin if American kids put the toys in their mouth. A year later, although the lead has been largely removed from imported toys, overseas toy makers are now using cadmium instead of lead in their production processes, an element that is just as dangerous (see a previous post for details found in an Associated Press report on cadmium laced toys).
• Congress holds hearings AFTER eight years of reported acceleration problems with multiple Toyota models over multiple model years.

Its only AFTER a crisis that the political class wakes up and starts posturing (but hardly doing anything effective) even though the problem has smacked them in the face. Rarely are they proactive in avoiding any disasters. Thus, Step 34 from "Love My Country, Loathe My Government" becomes critical in the future if we are to avoid future disasters of any kind:

Hold Congress and Senate committees and subcommittees accountable for their respective areas of responsibility, and remove committee members from committee posts if they do not meet minimal performance criteria.

If any politician sitting on the committees that are now investigating the Toyota problems have been sitting on those committees for any amount of time, they should all be removed since they, along with the NHTSA, were not competent enough to not see the acceleration problems over the PAST EIGHT YEARS. Thus, they should be relieved of their committee posts and replaced with others that may be more diligent in their responsibilities. There must be accountability at the Congressional level also, that is what we pay our taxes for, competence. Anything short of that is unacceptable and should have consequences.

Visit our website at www.loathemygovernment.com to order an autographed copy of the book, "Love My Country, Loathe My Government -Fifty First Steps To Restoring Our Freedom and Destroying The American Political Class" and to sign up for the cause. The book is also available online at Amazon and Barnes And Noble.