By John Karoly
Chicago, IL, USA
We have had a full exposé on the trading losses of J.P. Morgan, the investment bank. Article after article appeared in newspapers around the world. Many, many pages were written; Jamie Dimon, the Chairman of J.P. Morgan, appeared for a couple of days in front of the banking and finance geniuses of the Senate and House, which was broadcast in its entirety to the nation and to the world. Just a few days later, he was again on TV. The losses reported were six billion dollars and counting on the casino-like gambling the J.P. Morgan bankers were carrying out in a rather desperate attempt to earn money in a near-zero interest environment. These activities could have a potentially adverse effect on tax payers should the bank fail and require financial rescue by the government.
Kudos to the press and the public agencies for their vigilance. But now take another event, which took place a little later, but by now quite a few weeks ago. Reuters reported, and my professional society news picked up, that the largest refinery in the country in Port Arthur, Texas, which was just completely revamped following an investment of 10 billion dollars and is owned by two of the world’s biggest oil companies, Aramco of Saudi Arabia and Royal Dutch Shell, had to be shut down a few weeks after start-up. The refinery will be down for over a year causing one-and-a-half million dollars of profit loss a day because of an untold amount of damage, well above a billion dollars. As in the case of the J.P. Morgan trading losses, the final bill is unknown, but in this case no culprits were named. The focus is on the repair, and the only details reported by the press about the event were that a few gallons of chemicals leaked into the system, which at high temperatures, where these systems operate, corroded a large portion of the refinery units.
I have asked my friends and acquaintances, but nobody heard about this news. I saw a very short article buried in the Wall Street Journal. It was brief and barely comprehensible. My point is that the damage caused by J.P. Morgan and this refinery accident are close in magnitude, but treated differently by the press. We don’t fill up our gas tanks with speculative commercial papers and we don’t export these papers either. But we do export gasoline from Texas and we do need gas in our cars. This accident is a huge loss to the owners, but also for the country.
I am not an apologist for J.P. Morgan; I just don’t care that much about their losses, certainly less than the virtually unreported refinery accident. Yet the bank activities were reported ad nausea, while the refinery accident virtually not at all. This refinery accident was a humongous fluke, which most likely has never occurred before, and it should have been more generally reported just for the consequences to the companies and the country.
Now consider the next news item on my society’s news brief: the purchase of the Trainer, Pennsylvania refinery by Delta Airlines from Phillips 66. This purchase has been reported reasonably widely, although nowhere near as much as the J.P. Morgan case, with most commentators expressing amazement at the stupidity of the Delta Airline management. What does an airline company management know about refinery operations? If Phillips could not run this plant profitably, how does Delta hope to do so?
Delta claims to have hired professional management, but as most conglomerates learned over the years, without parent company management knowledge of the business, the company is not capable of making the right decisions. The professionals running the refinery will, sooner rather than later, present the Delta management several choices. Without knowledge of the business of refining, the Delta Board is very unlikely to come to the right decision. Their eyes will glaze over and they will confess they have no idea how to decide. Yet, it is the company’s money which will be spent, wisely or foolishly.
J.P. Morgan is a large and profitable organization. They can afford stupid mistakes and remain profitable and stay in business. Delta is a large and poor airline, like any other, struggling in and out of bankruptcy. A mistake like trying to run a refinery, processing the most flammable product, with hired guns reporting to a clueless management is skirting bankruptcy once again. In the view of many, it is only a matter of time. If Delta goes bankrupt, the government has to foot the bill because the country cannot afford to close down a major carrier!
Private enterprise, free trade, non-interference are great principles, but they only go so far. One would wish it would go and hold at all times, but obviously it does not. It did not hold for J.P. Morgan for the fear of failure would require a public bailout, and it cannot hold for Delta Airlines for the same reason. An airline is in a very public business, providing transportation to millions. They have a fiduciary duty to their clients and if they fail to exercise proper judgment, they must be called on it. The nations’ newspapers have to report this story and keep reporting it, just as they did with the J. P. Morgan story. We should not have, we cannot have two or more standards of reporting the news and leave the public in ignorance of events which truly affect them.