Why the BP Oil Spill is Like the Mortgage Crisis

Okay, it’s like this. The main reason we’re in a Great Recession is that, back in 1999, the U.S. government compromised itself to death. Bill Clinton wanted to increase lending to minorities. The Republican-controlled Congress (swept into office by Newt Gingrich’s “Contract with America”) said, “Only if you decrease regulation at the same time,” and so Phil Gramm (appointed senior economic adviser to McCain’s presidential campaign) drew up a bill that gutted Glass-Steagall, the 1933 act that prevented the Depression from happening again. President Clinton, weakened by the Monica Lewinsky scandal, didn’t have much wiggle-room in the Oval Office any more, and signed the legislation.

So, naturally, you get a huge housing boom totally based upon dodgy accounting and ludicrous credit standards which blows up in the world’s face.

You can’t make this stuff up, right?

Guess what. The BP oil spill is a result of exactly the same legislative deathmatch. The New York Times has a superb piece this morning by David S. Abraham declaring, this is a disaster that Congress voted for. In a highly balanced and nuanced argument, Abraham details how Congress really and truly has been addicted to providing the oil industry with economic incentives beyond all reason:

In a 1995 attempt to encourage more exploration, Congress agreed to reduce the cut of the proceeds the government could collect on oil and gas drilling in deep waters. Ten years later, despite higher oil prices and declarations from President George W. Bush that more incentives were not needed, a Republican-led Congress reduced royalties yet again.

It’s madness, of course – especially when

at the same time that Congress called for new drilling incentives, it also gutted oversight. From 2002 to 2008, legislators approved budgets reducing regulatory staffing levels by more than 15 percent… A 2004 Coast Guard study found that its “oil spill response personnel did not appear to have even a basic knowledge of the equipment required to support salvage or spill clean-up operations.”

When Bobby Jindal calls for more offshore drilling in order to help pay for coastal damage inflicted by offshore oil-and-gas operations (yeah, you read that right), then we have truly entered a land of the comedic insane, where the Mad Hatter starts writing Catch-22 contracts. The astounding thing is that, at base, it’s an exquisitely simple recipe for disaster: radically lower the barriers to enter the market, while radically de-regulating (by which we mean: knocking down the laws and rules that govern participation in this country’s economy) and what you get are toxic assets. That’s what we call a house, these days: a toxic asset, destroying the person who possesses it (for D&D fans, that’s kind of like a poisoned amulet, except with lots of bricks and mortar and wiring and plumbing).

But we should  be calling the oil spill a toxic asset too. The definition’s more apt; no metaphors needed here. It’s a natural resource that’s killing our economy and destroying the ecosystems of our oceans. It’s a substance that, for decades now, has powered our economy; now it’s bringing the Gulf to a standstill. It’s the toxic asset, our home mortgage that’s underwater. The rich will probably walk away from it, their dirty souls skimming the tops of the oily waves in that Gulf between them and us.

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