Why We Fail at Cleanups

One of the simple truths that we try to teach in kindergarten is that when you make a mess, you’re responsible for cleaning it up.

It really is a simple concept, although a lot of children and adults don’t seem to understand it. There’s no difference between a dog pooping on a kitchen floor or a sidewalk. If it’s your dog, you don’t leave the mess sitting there to attract bugs and shoes. Do you really want to live with someone who leavers clothes and pizza all over the floor? Come on, folks, really?

This is part of a larger problem of not thinking through what you’re doing all the way to the end. Everything has an end. Part of making dinner is clean up. Part of building a business is knowing how it will end — through sale, bankruptcy or shut down. Part of the life cycle of a nuclear power plant is known how to dispose of spent fuel rods and how to decommission it. Part of funding a ship is knowing the scrap value at end of life,

Everything ends.

An insurance publication just issued an article on coal mine cleanups. There’s a small company in Nashville, Tennessee, that has underwritten a disproportionate amount of bonds on which states are relying for mine cleanups.(1) In an era in which many financial companies are shunning coal as a dying industry, Indemnity National is building its bond portfolio at a rapid rate, and is paying a disproportionate amount of profits out to shareholders instead of retaining cash to pay obligations. If Indemnity can’t meet its obligations, states like West Virginia will be faced with budget-breaking liabilities and ultimately taxpayers will be paying billions for cleanups.

Of course, while the wrangling over cleanup creeps through the legal system, the people living around the closed mines, including former workers, are poisoned by the chemicals leeched into streams and aquifers.

Basically, company executives and shareholders will have made the messes, and left middle and upper middle class taxpayers to step in the mess.

It’s not just or fair. It’s another example of welfare for the rich.

It’s also an example of the kind of financial tool that could cause a meltdown. Through reinsurance, companies like Indemnity share risk with other investors. A default on several billion dollars worth of bonds might well impact a broader portion of financial markets. The result might not be as severe as the mortgage market collapse in 2009, but it could still be a rather big deal.

As the cartoon below shows, we don’t try to apply common sense until after the damage is done. That’s not good..

Sources:

1. https://www.insurancejournal.com/news/national/2022/11/08/694226.htm

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