Similarities between the Shuttle Challenger and BP Oil Spill Disasters

Most of the major accidents we're all familiar with could have been easily prevented. The more I learn about the BP oil spill, the more I see similarities with the Space Shuttle Challenger disaster: 1) speed and schedule were put before safety; 2) vital information provided by engineers in the field was ignored by management; 3) those same engineers allowed themselves to be bullied into continuing their work, rather than escalating the matter or seizing the power necessary to take control and avert disaster; 4) an overconfidence due to prior records of good safety led to complacency; 5) the failure of a relatively cheap and simple component (in both cases, a type of rubber seal) ultimately triggered the catastrophic failure.

If you've never studied the results of the Challenger investigation, I can recommend it as an excellent case study in poor communication and bad management.

60 Minutes ran a great investigative segment on the causes of the BP oil spill. The video can be seen here.

The results of the Challenger investigation can be seen here.

Citigroup on "Plutonomy"

Plutonomy: where the rich rule with the support of the government. (Obviously, a derivation of the word "plutocracy.") Bill Moyers was just talking about this on his show and referenced a series of reports from Citigroup on the subject. (Ironically, taxpayers now own the majority of Citigroup!) When something becomes so obvious that investment houses start to build investment strategies around it, then you know it's for real, and in this case, we have a problem.

I have no problem with people making the most of their available opportunities and becoming rich, evenly astonishingly so. I only care that we have fair playing fields, and a government that is not in the hip pocket of a few. From one of the Citigroup papers:

"Our thesis is that the rich are the dominant drivers of demand in many economies around the world (the US, UK, Canada and Australia). These economies have seen the rich take an increasing share of income and wealth over the last 20 years, to the extent that the rich now dominate income, wealth and spending in these countries. Asset booms, a rising profit share and favorable treatment by market-friendly governments have allowed the rich to prosper and become a greater share of the economy in the plutonomy countries."

Click here to access Citigroup's report on plutonomy.

Bill Black and Barry Ritholtz on the Goldman Sachs Fraud

Here's a good discussion on the Goldman fraud allegations. Folks, how many examples do we need to see before we realize these guys should be put out of business? When you come across a corrupt culture, there's never just one incidence of fraud. It's like the old "you can't be a little bit pregnant" saying. As Black says, if you're rotten, you're rotten to the core. Given that these types of situations take awhile to unravel, but then they just get uglier and uglier, it's beyond me why GS stock was only down 13% today. This is only the beginning. Take a look at this quote from Fabrice Tourre, the man who orchestrated this deal at Goldman. Of course, incompetence and/or irresponsibility do not necessarily equate to illegality, but I would say that there'd have to be a good chance that other of his "monstrosities" would have been illegal as well (from an Associated Press article):

In an email to the friend, he described himself as "the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!"

Elizabeth Warren on the Collapse of the Middle Class

Elizabeth Warren is a law professor at Harvard and has become a public figure recently due to her leadership role on the TARP Congressional Oversight Panel. She's also an expert on trends concerning the middle class. In this lecture at U.C. Berkeley in 2007, Ms. Warren discussed why the quality of life and financial security of the middle class has diminished year after year for the past 30 years. Not a pleasant subject, but it's an important topic. I hope you find it informative.

Credit Default Swaps Explained

Finally, someone has done a pretty straightforward video on how credit default swaps work. The punchline, if you will, is the part near the end about how someone can buy this type of insurance without actually owning the asset that's being insured. That was the magic ingredient that multiplied all of the problems in the meltdown and sent everyone into a panic. Also, take note that these swaps only cost about 2% per year of the insured value. So, when our government made good on AIG's contracts, they were providing Goldman Sachs and others with nice little 50:1 payoffs in many cases.

Barney Frank has it all under control

Good grief. I caught this interview on CNBC on March 24th. It's of Barney Frank and Chris Dodd talking about their financial reform agenda following their meeting with the President.

Frank's comments are particularly shocking. Fairly early in the video, he says that we've "dealt with" all of the problems that led to the collapse of the likes of AIG and Lehman. Oh really? How have we dealt with them, Mr. Frank? If any new regulations or government powers have been implemented, please cite them.

Then, about 80% of the way through the video, he says that we'll only pay down bank debts (in future bailouts) that threaten a "total spiraling downward" (i.e., a systemic meltdown of the financial system). Mr Frank, isn't systemic risk what we need to prevent by implementing too-big-to-fail measures and Mr. Volcker's ideas regarding the segregation of high-risk, non-banking activities? The whole idea is that we need to refocus banking and Wall Street on "boring" customer-focused activities, rather than high-risk proprietary activities, so that we don't create enormous risks in the first place.

I have to say, I feel like absolutely nothing has been learned, and that the American people are in very poor hands.

Video: Dodd, Frank meet with Obama over financial regulation
- Watch more Politics Videos at Vodpod.

Gretchen Morgenson on why no progress on financial reform

Wonderful interview on Bill Moyers Journal last night with Gretchen Morgenson of the NY Times: "Eighteen months after the economic meltdown, why has Washington been unable rein in Wall Street with serious regulation? Bill Moyers speaks with financial journalist Gretchen Morgenson for a candid look at the obstacles facing substantive reform and what Congress' proposed legislation would — and wouldn't — accomplish."


Click here to watch the video on PBS' site.