Fukushima is “a very huge disaster that has caused very large damage at a nuclear power generation plant on a scale that we had not expected,” according to the deputy director general of Japan’s Nuclear and Industrial Safety Agency.
But the risk of disaster was easily calculated, and an effective regulator would have demanded that the Tokyo Electric Power Company take the appropriate precautions. That didn’t happen. The ugly truth, here and in Japan, is this: Unless government regains the will and the ability to regulate private industry, more catastrophes are all but inevitable.
Corporate money has come to dominate politics, so change won’t come easily. Citizens will need to push for it as if their lives depended on it – because they do.
And economies are at risk, too. In the wake of Japan’s disaster, two highly visible American CEOs are playing walk-on roles in the crisis: JPMorgan Chase CEO Jamie Dimon is reportedly getting ready to travel to Tokyo, and GE CEO Jeffrey Immelt is staying uncharacteristically out of the limelight. Dimon and Immelt, along with US politicians and their Japanese counterparts, are all part of a larger story – the story of what we’re losing as government crumbles before the power of corporate influence.
Remember the outrage expressed by some right-wing pundits when Obama bowed to the Emperor of Japan? They’re not nearly as outraged when he seems to bow to the nuclear industry. The Washington Post reported on the Administration’s response to the Japanese disaster: “In sharp contrast to governments across the world that are moving to warn their citizens in Japan about radiation hazards and to reassess their own nuclear power programs, the Obama administration is pursuing a cautious course — standing firmly behind the U.S. nuclear industry.”
We’re not here to debate nuclear power, and in fairness to the Administration, it has also ordered a 90-day review of all 104 nuclear reactors in the United States to study their ability to withstand a Japan-like event.
But decades of withering attacks on regulation – led by Republicans, but supported by some “centrist” Democrats – have made it more difficult to protect ourselves. The public has already seen what happens when regulators and politicians get too cozy with industry. If they can’t run a safe bank, the logic goes, how can they protect us from radiation?
General Electric Goes to Japan
As ABC News reported, flaws in the Mark I nuclear reactor design (five of the six reactors at Fukushima are Mark 1s) caused nuclear scientist Dale Bridenbaugh to resign in protest thirty-five years ago. Writes ABC : “Questions persisted for decades about the ability of the Mark 1 to handle the immense pressures that would result if the reactor lost cooling power, and today that design is being put to the ultimate test in Japan.”
One nuclear regulator later said “I don’t have the same warm feeling about GE containment that I do about the larger dry containments.” GE knew of the design flaws but sold the reactors anyway. That’s what corporations do if nobody’s looking over their shoulder. The regulatory body in charge at the time, the Atomic Energy Commission, was criticized for lax oversight and excessive industry boosterism. In response to criticisms of the AEC, the Nuclear Regulatory Commission was established and eventually forced GE to make the design changes that Bridenbaugh had wanted. The Fukushima reactors were among those retrofitted.
In 2007 a Presidential candidate lacerated the NRC, saying that it had become a “captive of the industries that it regulates.” That candidate was Barack Obama.
The NRC just approved a 20-year extension for the Mark I reactor in Vermont, reports Kate Sheppard. And over in Japan, reports the New York Times, “Just a month before a powerful earthquake and tsunami crippled the Fukushima Daiichi plant … government regulators approved a 10-year extension for the oldest of the six reactors at the power station despite warnings about its safety.”
And even though GE retrofitted its Mark I reactors, nuclear scientist Bridenbaugh won’t say that he’s satisfied. “”What I would say is, the Mark 1 is still a little more susceptible to an accident that would result in a loss of containment.” And over in Japan, the Times reports that “the decision to extend the reactor’s life, and the inspection failures at all six reactors, highlight what critics describe as unhealthy ties between power plant operators and the Japanese regulators that oversee them.”
Imagination at work
GE doesn’t exactly have a sterling reputation in its financial operations, either. Last year the SEC concluded that GE Capital “engaged in knowing or reckless fraudulent activities resulting in numerous materially false and misleading statements or omissions,” concluding that “the conduct of GE involved fraud, deceit, or deliberate or reckless disregard of regulatory requirements, and resulted in substantial loss, or significant risk of substantial loss, to other persons.”
These acts were just the latest in a GE crime spree that FAIR documented, which includes overcharging the Army for battlefield system and a guilty plea on charges of fraud, money laundering and corrupt business practices while selling jet engines to Israel. FAIR cites a 1994 report from the Project on Government Oversight which “found that GE had 16 instances of fraudulent activity against the government since 1990 — the most of any company listed.”
Three additional offenses have occurred during the tenure of GE’s current CEO, Jeffrey Immelt: last year’s accounting fraud case, misreporting of retired CEO Jack Welch’s compensation, and the bribery of Iraqi officials under Saddam Hussein during the “oil for food” scandal.
The SEC report appeared to identify the guilty parties within GE Capital, concluding that the company was “acting primarily through senior corporate accountants,” and suggested that it would be pursuing action against the individuals involved.
It didn’t. Instead, the President named Immelt as head of his economic advisory council, which was given a new name that included the words “jobs.”
Now Jamie Dimon’s going to Japan. As we commented earlier, it makes sense for JPMorgan Chase’s CEO to visit a country struck by tragedy to rally his own troops and reassure important clients. We have no criticism there.
But Chase is exporting American-style financial instability. Japanese regulators placed it Number Three on their list of “too big to fail” banks, behind only Deutsche Bank and Goldman Sachs. Here at home, Chase holds an incendiary 40% of the derivatives market.
Meanwhile, the bank runs one of the slickest lobbying operations in town. Dimon’s publicity operation has convinced legions of reporters that he’s the smartest banker around, as Dimon and his team lobby aggressively against banking regulations in all forms. Dimon claims that his unique ability to emerge relatively unscathed from the banking crisis proves that he’s a master of risk management, the science of identifying dangers and avoiding them.
The problem is this: Dimon’s argument proves that he doesn’t understand risk management at all. Risk managers always plan for the worst-case scenario, not the best case. So if Dimon’s really the “too brilliant to fail” banker he claims to be, he would be planning for the day when he’s replaced by someone else – someone who could turn out to be more like Chuck Prince from Citigroup or Joe Cassano from AIG.
Dimon’s a solid and competent banker, but he’s not the visionary he claims to be. Although he boasts about avoiding CDOs (collaterized debt obligations), for example, he was moving aggressively into that market with his Magnetar deal when the financial crisis struck. Even with that happy accident of timing, Chase lost billions in the subprime market. With $30 billion in subprime mortgages on the books, being issued at the rate of $3 billion per quarter when the crisis struck, let’s just say Dimon wasn’t the risk management genius he claims to be. That won’t stop the continued flood of “Jamie Dimon, Master of Risk” articles like this one.
Dimon’s conception of risk apparently doesn’t include preventing corporate crime, since his record there is less than stellar. Under his watch, Chase had to forego roughly three quarters of a billion dollars in fees after a particularly ugly bribery and corruption case that involved spreading $8 billion around the sate of Alabama. The bank has had to set aside $2.3 billion for litigation and/or the repurchasing of bad mortgages. It paid $25 million for selling unregistered securities in Florida and elsewhere, which is illegal.
And we haven’t even talked about the “Burger King kids” who worked at Chase’s foreclosure mill.
These massive breakdowns by the best “risk management banker” in the business didn’t stop Robert Rubin, Alan Greenspan, and others from insist that corporations’ own internal risk operations could protect the economy from future disasters. It’s true that there are some very smart risk managers who probably could prevent disasters … but they don’t run their companies. And CEOs are measured by their earnings, not by the number of tragedies they’ve avoided.
If the Administration’s been a disappointment on the regulatory front, the Republican Party’s worse … much worse. They’re aggressively campaigning against regulation in all its forms, insisting that we can’t afford it. If the President feels the need to compromise, entice, or appease large corporations, the GOP’s attitude is downright servile.
Republicans in Congress are aggressively moving to stop last year’s financial reforms, which were themselves on the first of many needed steps. And they’re eager to defund regulation in all areas.
The White House doesn’t need to be shy about arguing for meaningful reform. As a Senator, Harry Truman shamed dishonest military contractors by traveling across the country exposing waste, fraud, and inferior weaponry that endangered the lives of our troops (including my own uncle, who died piloting a defective bomber long before I was born).
Can you imagine any Senator repeating Truman’s actions today? Most depend on corporate contributions to get re-elected. Sen. Patrick Leahy introduced a Truman-like bill a few years ago and couldn’t get enough support to keep it alive.
The reality is stark: As politics became more money-driven and less “retail” – as handshaking, baby kissing, and whistle stops became relics of the past – the balance between business interests and government oversight inevitably eroded. One of the 21st Century’s greatest challenges will be learning to restore that balance.
Without it, we’ll always be at risk.
This post was produced as part of the Curbing Wall Street project.