Monday, June 14, 2010

The BP Oil Disaster; Obama's Clinton/Bush Sub Prime Meltdown

In a recent article on his blog, Clinton Catalyzed Gulf Oil Drilling Boom Dick Morris shows the many similarities between the BP oil disaster and the sub-prime mortgage meltdown; both had unintended consequences due to government not knowing what it is doing and both had their beginnings with the Clinton administration.

In 1995 President Clinton signed the Outer Continental Shelf Deepwater Royalty Relief Act, which encouraged the oil companies to drill deep-water wells in the Mexican Gulf. This was an act that was cheered on by the Republicans in Congress; the oil industry took its cue from Washington and went full speed ahead into drilling and production in deepwater Gulf oil wells with the predictable result that something, somehow, sometime would go very, very wrong and that nobody would have the faintest idea of what to do about it (Dick Morris).

In 1999 the Financial Modernization Act (FMA) set the stage for the sub prime mortgage bubble. The act repealed the Glass Stegal Act in 1999, which removed the boundaries between Commercial and Investment Banking, this also allowed the bundling of mortgage back securities which previously had only been allowed by Government-Sponsored Entity, such as Fannie Mae. And finally, the FMA re-instituted naked-derivatives such as Credit Default Swaps. 2000 under pressure from the Clinton Whitehouse, Franklin Raines (Clinton's former Secretary of US Office of Management and Budget) institutes the American Dream Commitment (ADC), and the bubble forms and starts to inflate.

All three Administrations – Clinton, Bush, and Obama – bear the blame for this (BP Disaster) abject failure. None took the danger of a massive spill seriously or sought to hold up the massive expansion of off shore drilling until failsafe measures could be developed (Dick Morris).

Of course, there is still the blame bush crowd, that claim the current lack of regulation and poor contingency planning was inherited by President Obama. This ignores the facts from my previous blog, A Note On How President Obama Can Really Take Ownership of the BP Oil Disaster, “that while oil industry gave twice as much money to the Republicans as Democrats, BP oil gave twice as much to Obama over McCain during the presidential election. President Obama also appointed BP senior manager Silvia Baca to the federal office of Minerals Management Service and BP’s chief scientist Steve Koonin as undersecretary of science to the Department of Energy. Then, when the President created a commission to look into the BP Oil Disaster, he chooses William K. Reilly as a commissioner, who is currently on the payrolls of both ConocoPhillips and Dupont”. You also have Obama’s secretary of Energy, Steven Chu. Chu previously received a $500 million grant from Koonin when Koonin was at BP. Koonin then followed Chu to the Department of Energy.

But, as with the subprime crisis, policy initiatives taken during the Clinton years – with the best of motives – were implemented without adequate regulation and without due consideration of the dangers involved. We are now suffering mightily for this failure of foresight and planning (Dick Morris).

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