Economic Disaster: Who Pays the Price for Failure?

Economic Disaster: Who Pays the Price for Failure?

The issue of restitution is front and center in the Gulf. How does a publicly traded corporation like BP compensate business owners and workers who suffered severe economic loss due to its negligence?

In our survival-of-the-fittest world of capitalism, the traditional response is “tough luck sucker” if you are on the losing end of the deal. In the late 20th century model, compensation for BP’s mistakes would not even be on the table.

No one compensated Katrina victims for lost homes and businesses despite the fact that the City of New Orleans and the State of Louisiana were directly responsible for building inadequate levies. No one paid hundreds of thousands of entrepreneurs and small business people for lost incomes when a few dozen mortgage securities firms collapsed the economy.

In the second decade of the 21st century, who pays the price for failure?

The tide is changing when it comes to corporate responsibility and economic fallout. BP in the eyes of the President, Congress and much of the nation is obligated to repay lost income for Gulf residents. This could include everyone in that region.  The tragic accident will affect the lives of the people of the Gulf for years to come. The simple question remains, how much to compensate lost income is fair and just?

Under pressure from the White House, BP has publicly promised to compensate Gulf businesses through a $20 billion “Victims’ Compensation Fund.” Obama’s aides said if needed the government would “force” BP to compensate victims and claim that “we have the legal authority” to do so.  An official spokesperson stated, “We’re confident that this is a critical way in which we’re going to be able to help individuals and businesses in the Gulf area become whole again.” The White House is unequivocally convinced that negligent companies that interfere with livelihoods must pay the price for that economic disruption.

None other than Kenneth Feinberg, social justice compensation King, has been sent to the Gulf to fix the unfixable. Feinberg was the one accomplished diplomat and lawyer who compensated families of victims after the September 11 attacks. Somehow, he managed to maneuver the tempers and high emotions of the restitution process and still come out with his reputation for fairness and sensitivity intact. Feinberg says of the BP fund payouts, “This program I am running is absolutely voluntary — nobody has to do it. It’s my opinion you are crazy if you don’t participate.” Participants like their September 11 brethren must sign a waiver not to sue BP or the federal government if they accept compensation from the fund.

The two-part repayment plan begins “with the relatively easy process of getting emergency payments, available without obligation to eligible claimants who can prove their losses, up to six months’ worth of damages at a time. (BP has paid out more than $200 million from 36 claims offices to more than 32,000 claimants so far.) Then, 90 days after the well is plugged, comes the tougher phase of the three-year program: negotiating with each claimant for the lump sum to cover economic losses from the spill.”

Receiving compensation from a company to pay for their negligence is nothing new. Among many corporate settlements, the pharmaceutical giant Merck settled claims for its deadly Vioxx in the mid 2000’s. In the 1980s, A. H. Robins Company paid victims $2billion to compensate for defective Dalkon Shield birth control devices. Both companies fought allegations that their zeal for profits allowed them to ignore known dangers of their products. Such allegations are being levied at BP

What sets the BP fund apart from other corporate negligence debacles is that the product BP was selling is not the issue; the process from which it was sourcing that product is at the heart of the matter. BP has harmed the ecosystem we all rely on. Its fund participants are those whose livelihoods are directly derived from that system. By damaging the delicate balance of nature through its pursuit of profits, BP has interfered with the life and livelihood of Gulf residents.

This is a ground breaking shift in the way we look at corporate responsibility. The United States federal government and the mega-corporation BP have set an important precedent. Those victims who can prove loss of income directly due to a company’s negligence and/or misconduct are due to be compensated for those lost revenues.

The folks in the Gulf are soon to be paid emergency funds to help them weather  this challenging time and the difficult months ahead. All of America’s hearts are with them. We hope and pray they are treated fairly and justly. BP is already accused of putting mountains of paperwork ahead of real payment for those struggling to survive like fisherman, tourist industry professionals and any other business reliant on a healthy Gulf.  The direct connection between the BP Oil Spill disaster and their livelihood is clear. Any other response would be even more tragic on the part of BP and the Feds.

A New Level of CSR

It brings to mind another group of people who have lost their incomes directly due to the negligence and misconduct of global corporations: the victims of the subprime mortgage markets and the credit crisis.

In New York, California, Arizona, Nevada, Florida and across the nation, there are hundreds of thousands of such victims. As a former partner in a Wall Street recruiting company that directly supported the work of Good Business International, my firm lost two solid years of revenues as a result of the misconduct of the subprime mortgage securities industry. Yet we are only one business of many that experienced this harsh reality.

Construction companies, builders, retail stores, landlords, real estate professionals, regional bankers, employees of non-mortgage related banking and small businesses like dry cleaners, newspaper stands, restaurants and dozens of others have been devastated economically.

Errant subprime lenders like Wachovia, Washington Mutual, Countrywide and Indy Mac have paid their top executives multi-million dollar compensation packages while declaring bankruptcy and simultaneously bankrupting thousands of entrepreneurs. Firms like AIG, Fannie Mae, Freddie Mac, Goldman Sachs, Bank of America, Morgan Stanley, Citigroup, JPMorgan and Wells Fargo have received hundreds of billions of federal taxpayer dollars while impoverishing directly related businesses.

The question arises then, where is the Subprime Mortgage Market Victims’ Compensation Fund? As an entrepreneur in a financial services or real-estate business, you may have lost your entire source of income due to the inappropriate and borderline criminal actions of specific companies and never recover a dime. This economic disaster and continuing credit crisis has changed the lives of many of those dependent on the financial industry for years to come. Yet who has paid the price for the failure of the subprime mortgage markets and its economic fallout?

So far no one responsible has paid any compensation to those who were victimized by their negligence and misconduct. The rating agencies, securities firms and commercial banks continue to book record profits while millions of small businesses close their doors.  

Based on the response to victims of the Gulf disaster, it seems high time such a fund is created to compensate small business people who received no compensation, no unemployment insurance, no restitution of any kind after suffering huge income losses at the hands of the big bailout banks. 

Beyond personal injury lawyers, perhaps a new legal specialty has formed in the wake of the BP tragedy: income injury law.

Let the trials begin.


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Monika Mitchell - Executive Director