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November 21, 2008

DEBORAH AMOS: Welcome to the JOURNAL. Bill Moyers is away. I'm Deborah Amos.

Congressional hearings have rarely been as popular as they were this week.

BRIT HUME: There are questions on Capitol Hill…

DEBORAH AMOS: It's been must-see TV as the principal architects of the bailout plan took the hot seat.

BARNEY FRANK: It is nobody's view that we have been as successful as we need to be for the sake of the economy in reducing foreclosures.

HENRY PAULSON: As I think we've turned the corner in terms of stabilizing the system, preventing a collapse.

DEBORAH AMOS: Back when the financial crisis first struck and a posse of panicked bank and investment firms were demanding government help, the Treasury Secretary said he felt like "Butch Cassidy and the Sundance Kid. Who are these guys that just keep coming?"

The latest was the Big Three. The auto companies took a road trip to Washington, hat in hand, looking for a little cash to tide them through the tough times - just $25 billion. The CEOs left the next day as cash poor as they had come - in their private jets, a perk not unnoticed by lawmakers.

REP. BRAD SHERMAN: I'm going to ask the three executives here to raise their hand if they flew here commercial. Let the record show no hands went up.

DEBORAH AMOS: With the bailout billions on the table, others are looking to help themselves - giant financial companies like The Hartford, were quietly preparing a spot in line by buying up failing banks. And why? That purchase instantly qualifies them for government bailout funds.

Outside the Capitol, the deepening recession could be seen in one historic statistic after another. For example, new housing starts dropped to 50-year lows. Hundreds of thousands jobs lost in just a month. The stock market sunk again, taking retirement savings with it. There is no end in sight.

Joining me now to talk about what we learned this week is Joe Nocera. He's an award-winning business columnist for the NEW YORK TIMES. Last year, he was a finalist for the Pulitzer Prize in commentary. His latest book, GOOD GUYS AND BAD GUYS, is a collection of his writing covering the saints and scoundrels of American business.

DEBORAH AMOS: Welcome to the Journal.

JOE NOCERA: Thanks for having me.

DEBORAH AMOS: Henry Paulson told us this week that we've turned a corner, that the markets are stabilized. But yet we saw banks losing their value. I read at Citicorp they've even taken the stock ticker off the televisions in the office because the news is so bad. So if Paulson's convinced we're stabilizing, is the bailout working?

JOE NOCERA: In a word, no. The bailout was intended to restore capital in the major banks. And one of the reasons they gave it to all nine banks that they gave it to was they wanted to try and disguise which banks were troubled and which weren't, so that people wouldn't lose confidence in particular institutions. But everybody knew that Citicorp was in the worst trouble. And events over the last few weeks have just kind of worsened its condition. And now the market really doesn't believe that the $25 billion they got from the federal government is going to be enough. And in fact Paulson's statement was really premature. And the sad part is, to me, that his actions this week have really kind of signaled that he's shutting down between now and January 20th. It's like, "I'm done. I'm out of here."

DEBORAH AMOS: So who's in charge?

JOE NOCERA: Boy, that is a good question. And we need so badly need somebody to be in charge. It does and others have pointed this out, but I'll point this out as well. In 1933, you know, in the interregnum between, when Hoover was leaving and FDR was coming in, Hoover desperately tried to get FDR to engage and to come in together with him to make broad policy decisions. And FDR wouldn't do it. And people got very upset at him. He lost some popularity and credibility. But he didn't want to be associated with Hoover's plan. So he let bad things happen in that timeframe and then you know, obviously came in roaring as president in the famous first 100 days. Now, Obama is not doing that particularly. I mean, he's not obviously distancing himself. And really there's not a lot he can do because it is still the Bush administration. And so the fact that the Treasury Department seems to have said, you know, "No mas. We're out of here," is I think extraordinarily negligent.

DEBORAH AMOS: This week Paulson defended his bailout plan. And he defended essentially what's a U-turn. This is a pile of money at first intended to buy up some of what's called those toxic…


DEBORAH AMOS: …mortgages. Then he said, "No, actually it's now about finance." And he said, "I don't have to apologize for changing my mind. Things changed."


DEBORAH AMOS: But it's led to some criticism that he's been shooting from the hip.

JOE NOCERA: Well, it's worse than that. He has destroyed confidence in the Treasury Department on Wall Street. I mean, because you've only mentioned two things that he said. But, in fact, last week he came out and said, "We're going to help credit. We're going to help Americans start buying things again." Now, the question of whether Americans should be buying things again is a whole other story. But he said, you know, "We're going to get credit card loans rolling again and auto loans." And it turned out nobody else in the government barely even knew about this idea. And it was dead within 24 hours. And then he said, you know, they had always had this idea that eventually we will start buying these toxic securities, even though we're going to do the recapitalization of the banks first. So then this week he said, "Oh, never mind. We're not going to do that either." Now, I happen to think that from a purely technical standpoint, buying those toxic assets from banks would have been extremely difficult for the Treasury to do.

DEBORAH AMOS: And these are essentially the mortgages?

JOE NOCERA: Yes. The pools of mortgages that are subprime and that are troubled. There are all sorts of technical reasons why it's much harder than it sounds. And people on Wall Street sort of understood that. And after the bill passed, they kind of were telling Treasury, you know, this isn't really going to work. Still, there was an expectation in the marketplace that they would do some of it. So when he announced this week that they were not going to do it after weeks of saying that they were going to do it, it had a terrible effect on the market. Terrible. It is part of the reason why Citi is now declining so quickly. It is part of the reason why credit default spreads are widening once again. It has just even though they would say, "Well, it shouldn't have that much of an effect," but it's an example of the Treasury Secretary changing his mind for the third or fourth or fifth time and destroying confidence in the ability of the government to help us. And so the opposite happens. It hurts us.

DEBORAH AMOS: Is then this the case that there isn't an agreement on what needs to be fixed?

JOE NOCERA: Well that's an interesting question. I would say there certainly is agreement that if financial institutions continue to have trouble, the government's going to have to throw more money at them because one thing we learned in the last few months is you cannot let one of these fail. The willingness of the federal government to let Lehman Brothers default in mid-September was the single worst mistake that it made, that it had powerful, powerful ramifications.

DEBORAH AMOS: And that seems to be now a common view?

JOE NOCERA: Right. All over the world. And everybody agrees with this except Hank Paulson at this point. The third element, though, upon which there is huge disagreement, is what we should do for homeowners. This is not an issue of compassion or liberalism or anything like that. This has to do with solving the financial crisis. You cannot solve the financial crisis if you don't solve the problem at the root, which is on Main Street in people's homes where they either have sub prime mortgages that are going to reset in ways that will make them unable to pay their mortgage, or they're already facing foreclosure.

DEBORAH AMOS: When there was talk in the beginning about the bailout plan, that was one of the major issues that Hank Paulson talked about that we have to fix the mortgage crisis. He acknowledges that it is at the basis of what the problem is. And yet he hasn't addressed it. Why?

JOE NOCERA: It's so hard to figure out. Number one, as Barney Frank said this week in one of those hearings, Mr. Secretary, it is explicit in the legislation that preventing foreclosures is one of the things this money is for, which he kind of keeps denying. Secondly, he makes this distinction between investing in the financial institutions, which he does call investing, and giving money to homeowners or doing something for homeowners, which he calls spending. In other words, he sees that as a government spending program. And he's opposed to that. But if you don't do something for homeowners, not only will it hurt the economy, it'll hurt neighborhoods. It'll hurt the next door neighbor. And by the way, it'll go all the way up the chain of Wall Street and you'll start to see the write offs all over again and the same problems all over again.

DEBORAH AMOS: The counter-argument has been about moral hazard. That if you bail out, bail out homeowners, there'll be more people who will say, "I need help."

JOE NOCERA: And there's more than a little truth to that. And the moral hazard is a real argument. And it has driven a lot of the thinking in Treasury about what to do about homeowners. It's like if you give people incentive to foreclose, more people will decide, "Hey, I'm about to foreclose." So my problem with it really is that if you're going to say that about homeowners, why don't say the same thing about financial institutions? Why doesn't moral hazard work for them as well? And, you know, the government has bent over backwards to give money to financial institutions whether they need it or not. And they just don't seem to have the same set of standards.

DEBORAH AMOS: Let me ask you about Sheila Bair.


DEBORAH AMOS: She was in the hearings this week. She was appointed to head the FDIC, the Federal Deposit Insurance Corporation. She has a different plan. She's actually done some mortgage readjustments. Tell me about why her plan is different than what Paulson's talking about.

JOE NOCERA: Well, she has been in this position where she has, the FDIC took over a bank in California, IndyMac, and they have used it as a petri dish to experiment with mortgage modifications to see what can be done, what can't be done, how many can we do. Now, the program is still in its beginning stages. There are 60,000 mortgages at IndyMac. And I think they've only modified 3,000 or 4,000. But she does view this as a way to do major modifications. And the idea is, you know, you get it down to 31 percent of their income, however you have to do it. Income, interest rate readjustments, even some principle readjustments. You broaden the length of the loan. You make them fixed rates. There's a lot of things she's doing.

DEBORAH AMOS: And they work?

JOE NOCERA: They absolutely do work. Now, what she wants to do on the federal level is cut a deal with banks that basically says if you modify mortgages so you take a bit of a hit and you do same thing we're doing at IndyMac, we will guarantee that you won't lose any more money on those deals. In other words, if the person re-defaults after you do a modification, the government will guarantee to cover the loss on the re-default. The estimate for that at the moment is about $40 billion. She has been negotiating with the White House for well over a month on this and the Treasury Department. And they basically think it's too much money and they don't want to spend it. And they also think her criteria is too broad, and they want to narrow it. So she finally, in disgust really, just posted her plan on the FDIC website and basically said, "Here, America, is what I want to do and they won't let me do it." She is completely broken with the administration.

DEBORAH AMOS: She's a political appointee.

JOE NOCERA: That's right.

DEBORAH AMOS: Just like the Treasury Secretary.


DEBORAH AMOS: Why did she break so publicly? And why did she choose the hearings this week to do it?

JOE NOCERA: Well I think she's just disgusted. She has gotten increasing resistance, she has just basically decided time is running out. They're not going to be here that much longer. I'm probably not going to be here that much longer. There's no downside in my just telling the country what we could do if they would let us.

DEBORAH AMOS: I've read that her background is as a small banker, as opposed to Hank Paulson, who is a big banker. Do you think that that's a mindset that is the difference between how they look at this?

JOE NOCERA: I think the mindset is slightly different. He is, you're right, a big banker, an investment banker, a deal maker. She has basically spent most of her life as a regulator. And one of the things that's been missing in this crisis is people who think like regulators. That's not a dirty word, you know? A good regulator can do a lot of good. A bad regulator can do a lot of bad. So she's actually thinking like a regulator. So one of the things you know, she and Ned Gramlich, who's the late former the late Federal Reserve governor, were the two people in government who kept saying, "This is going to be a problem. We can see the numbers," because that's what they do at the FDIC. "We can see that there are going to be all these subprime resets and people are not going to be able to pay for their mortgages." And, you know, nobody wanted to hear it. Nobody wanted to hear it

DEBORAH AMOS: The credit markets are in deep freeze.


DEBORAH AMOS: Again. This was also to be part of the bailout, to fix the tap, to get the banks to turn on the tap. What gets credit moving again?

JOE NOCERA: You know, the only answer to that is a psychological answer. It's not a physical answer. And it's not a monetary answer. It's confidence. It's confidence. And what is the saddest part about Paulson's actions these past months is that instead of restoring confidence, it is helping destroy confidence. He can give $100 billion to Citigroup if he wants. But if the marketplace and the investment community and the clients and the customers don't have confidence in Citi, it doesn't matter. And if banks don't have confidence in each other, they won't do inter-bank lending. And if banks don't have confidence in businesses and customers, they won't lend the money.

DEBORAH AMOS: As simple as that?

JOE NOCERA: It's really, really that simple. I was in Chicago this week and just talking to a company or two about how they're dealing with the credit crisis. And it's just so clear that nobody trusts anybody to pay anything back. So, you know, cost of capital for a company that used to be three percent is now 15 percent. I mean, it's almost like 1980 again. They're trying to jawbone banks into making loans. But banks are scared. And banks don't think there's much percentage in making loans right now. And they think the money is better spent shoring up their balance sheet. So they can jawbone all they want, but it's not going to make that much difference.

DEBORAH AMOS: As we watch the bailout unfold, there's a lot of people that say it's tax money; therefore, it's my money. There's not enough transparency even though it was called for in the original bailout plan. Why not? Why don't we know?

JOE NOCERA: It is so baffling. The Treasury Department just doesn't seem interested in ferreting out this information or at least supplying this information to the American people. I think it has to do with Paulson's background, that he is an investment banker. That when you're an investment banker, you don't want anybody to know who your trading partner is. You don't want anybody to know that you're going to sell a big position because they'll front run you. And, you know, there's a whole aura of secrecy justifiably in many cases in how you trade in the marketplace.

DEBORAH AMOS: So he's thinking like an investment banker and not like a Treasury Secretary?

JOE NOCERA: Right and meanwhile, you've got a situation where, you know, AIG is sucking up government money like crazy. I mean, they're over $100 billion. They have kept coming back for more. And nobody knows where that money is going. That's taxpayer money. What institutions is AIG, AIG is using this money for collateral.

DEBORAH AMOS: It's a big insurance company, AIG.

JOE NOCERA: Right. And they made they did had one division that did a lot of dumb things with derivatives and credit default swaps. And now they're paying the price. And the price they're paying is they have to send this money out as collateral to their trading partners. We don't know who those partners are. We don't know what the collateral, how much the collateral is. We don't know who we're propping up by sending this money to AIG. And it's really shameful.

DEBORAH AMOS: For you, what's the headline this week?

JOE NOCERA: I think the headline this week is "Government Shuts Down." Or, no, "Government Throws in the Towel." It's a terrible thing to say, but I do think that's the headline this week. The one good headline, we haven't really talked about it much, is that the Democrats told the auto companies to come back with a plan in 12 to 14 days. And you think to yourself, "Guys, don't you realize you should have come up with a plan in the first place?" You can't just come up and beg for money after all the problems you've had.

DEBORAH AMOS: And come in your private jets.

JOE NOCERA: Well look, if they each had one private jet instead of a fleet of seven or eight, I wouldn't have that much of a problem with it. I don't know that I really want Rick Wagoner to be flying commercial. People would just hit him over the head. So the secondary headline is, if the auto companies could just come up with a plan and say, here's how we get the profitability if you give us this money there's some hope that something could be done for them between now and January 20th.

DEBORAH AMOS: And if there is agreement and there's talk of another session of Congress sometime between now and the end of the year and there is a bailout for GM, and the other two, does that restore confidence? Is that a sign that government didn't throw in the towel?

JOE NOCERA: Well Treasury won't have very much to do with it, for one thing. No, it's not. All it is, it gives you a little breathing room. But it is not, it will not be the confidence thing that we need. I mean, really, let's be realistic. We need an Obama administration to get in there with smart people who know what they're doing, who can sound decisive, and who can make moves that will cause the marketplace to say, "Phew. Thank god they're here."

DEBORAH AMOS: What do you worry about in these nine weeks before the Obama administration takes office? What keeps you up at night?

JOE NOCERA: Well, the thing I most worry about really is that the financial institution problem will re-rear its ugly head. That is the thing I'm most worried about. Everything else is going to be gradual. The foreclosure problem can be dealt with in January. The auto problem can probably dealt with in January. But if you have another re-rearing of the Citibank and then the contagion goes to Morgan and then it goes to Goldman Sachs and then it goes to Europe again and Asia again and, the Republican administration only has another month to run. And they have to go to Congress to get authorization for the other $350 billion, that's what you don't want.

DEBORAH AMOS: This crisis doesn't work on a holiday schedule.

JOE NOCERA: You know my friend John Gapper from the FDA has had the best line of the whole thing. Early on in September he said, "God, I wish Hank Paulson would just take the weekends off." But he can't. You're right. It's been a brutal, brutal three months.

DEBORAH AMOS: Thanks very much, Joe Nocera, for joining us on the JOURNAL.

JOE NOCERA: Thank you.

REP. RON PAUL: What are we going to do? What have you thought about doing?

REP. MAXINE WATERS: Will the homeowners be helped?

REP. JEB HENSARLING: How much exposure is out there?

REP. NYDIA VELAZQUEZ: Why are foreclosures still increasing?

REP. PAUL KANJORKSI: Do we have a plan? Where are we going?

DEBORAH AMOS: The inauguration is still two months away. Until then, the current occupant of 1600 Pennsylvania Avenue is the man in charge. So you could call this the twilight of the Bush administration. But others are calling it the midnight phase - for midnight regulations - that last minute scramble to change or undo federal rules.

Presidents do this all the time, at least since President Carter. But the Bush administration is pushing through what seems to be parting gifts to big business and favored industries.

This is how some coal mining gets done. A new government regulation would ease restrictions on dumping what's left-over into rivers and streams.

But environmentalists say all that debris threatens water quality and public health. And that's just a start. "As many as 90 new regulations are in the works" according to the WASHINGTON POST. "The doors at the New Executive Office Building have been whirling with corporate officials and advisers pleading for relief or, in many cases, for hastened decision making." The paper added, "The new rules would be among the most controversial deregulatory steps of the Bush era and could be difficult for his successor to undo."

Some examples: at the Labor Department a rule change first circulated in secret would make it harder to protect workers from exposure to hazardous chemicals and toxins, this, from a department that passed only one major occupational health safety rule for chemical in 7 ½ years.

And just this week at the Department of Transportation a rule that allows trucking companies to make drivers work up to 11 hours a day behind the wheel. This same regulation has been rejected twice by the courts.

Public Citizen, the consumer and safety advocacy group, charges that the Bush administration has created a "sweatshop on wheels" ignoring statistics that show that more than forty-eight hundred people a year are killed in crashes involving large trucks.

Bush appointees over at the EPA have been busy too on new rules that would weaken environmental protections.

Consider the vista into the Badlands of South Dakota. This is the same view, on a bad day. That's not early morning haze. It's pollution. In about a third of our national parks, pollution is often higher than EPA health standards allow.

The Bush administration seems on track to make the problem worse. The White House is finishing up a rule that would make it easier to build coal burning power plants right next door to national parks and wilderness areas even over the objection from nine of the EPA's ten regional offices.

The rule could benefit more than twenty power plants that are now planned.

Those are just a few of the last minute changes from the Bush administration before they shut off the lights and close the door. You can read more on our Web site, at

In nearly every case, the new rules or the undoing of the rules makes it harder for regulators to do their jobs protecting the environment, workers or consumers. And as we've seen so clearly in the financial crisis, what regulators do or don't do matters. That's true at the state, as well as the federal level, as you'll see in our next story.

An investigative reporter with WFAA, a local television station in Dallas, spent a year looking into deadly gas explosions in area homes. He produced an award winning series that asked the question: Did regulators ignore repeated warnings going back decades that put thousands of lives at risk? Our colleagues at Exposé bring you that story. It's part of Blueprint America a PBS-wide series on the state of our nation's infrastructure. It's narrated by Sylvia Chase.

SYLVIA CHASE: The early morning hours of October 16, 2006 in the Dallas, Texas suburb of Wylie.

WOMAN: It shook my whole house. You would have thought a bomb had gone off.

SYLVIA CHASE: An explosion, caused by a gas leak. It blew Benny and Martha Cryer out of their bed and trapped them under burning rubble. Neighbors tried to pull the Cryers to safety but the flames were too intense.

CRYERS' NEIGHBOR: My husband tried to put keep a hose on them to keep them from burning. We didn't know what else to do. You know, we couldn't quite reach them because it was so hot.

BRETT SHIPP: Oil and gas business is part of this state's heritage; I mean it is our heritage to drill. It is our heritage to walk around with big wads of cash from the oil and gas patch. We got to be who are because of big oil and now big gas.

SYLVIA CHASE: Atmos Energy, one of the largest natural gas distributors. In the country is headquartered in Dallas. It's the company that provided natural gas for Benny and Martha Cryer before the Wylie blast took their lives.

Immediately after the accident, the state of Texas began a probe that would look into whether or not Atmos had any responsibility in the explosion.

But that wasn't the only investigation that would be launched.

At WFAA, a Dallas TV station, news director Michael Valentine wondered: could the Cryers' deaths have been prevented?

BRETT SHIPP: And that's when the news director and assistant news director called me over and Mark Smith, my producer over and said guys, I want you to do this story from an investigative angle.

SYLVIA CHASE: Reporter Brett Shipp began his investigation in an unorthodox fashion: investigating the present, by revisiting the past. Six years earlier he had covered another gas explosion that had torn apart another neighborhood. More lives had been lost.

SYDNA GORDON: It seems like yesterday. You know, the same tree here and the same houses but when I look at the new house then it brings me back to reality.

SYLVIA CHASE: Today the house where Sydna Gordon's mom and dad lived has been rebuilt. She took Exposé there.

SYDNA GORDON: People who lived several miles away heard the explosion. There wasn't anything left. This necklace that I have on is about the largest item that we picked up. Just pieces of mother's china.

SYLVIA CHASE: The accident haunted Sydna Gordon. She wanted to know why it had happened. She knew that's what her dad would have wanted too.

After World War II, Albert Holbert worked as a metallurgist in the oil industry. His expertise: investigating pipeline accidents.

SYDNA GORDON: People die when equipment fails in the field and so daddy always considered it crucial to know what happened. That if it was a problem, that it got fixed. He risked his life to fly B-24 bombers and then to die like that was just awful.

This is the accident report, such as it was and…

SYLVIA CHASE: An attorney, Gordon began her own one-woman investigation.

BRETT SHIPP: She had filed voluminous open records requests looking to see if there was a pattern, a history of neglect on the part of not just the gas company but perhaps the state agency.

SYLVIA CHASE: Through her research, Gordon learned about a plastic pipe called Poly 1. It carried gas to her parents' house, and to thousands of other homes. It was prone to cracking and dangerous leaks.

In 1998, two years before the explosion, the National Transportation Safety Board sent out a nationwide warning about the danger of Poly 1 pipes. But at the time of her parents' death gas companies had only performed intermittent removal.

Sydna Gordon spent years trying to understand why federal warnings had gone unheeded.

She filed open-records requests with the agency in Texas that regulates the gas and oil industry and is responsible for investigating gas explosions. It is known as the Texas Railroad Commission.

MARK SMITH: She had asked for a lot of records, just a lot of records, and both Brett and I looked at each other and said, records, what kind of records do you have.

BRETT SHIPP: She said I still got that box of documents; the response to my records request is in my possession. And Mark and I were like, well, can we see it. And she was like, ya I've got it right here.

Sydna Gordon had no idea what was in that box but it was a treasure of information and it was a roadmap to the truth.

SYLVIA CHASE: But Shipp wouldn't realize the importance of that box of documents until much later.

For now, Shipp would learn from combing the WFAA archives that over the years there had been many serious explosions due to gas leaks in Texas. Several had caused deaths. He wondered if that signified a problem with the state's natural gas infrastructure.

BRETT SHIPP: I called the Railroad Commission and sent an open records request and I wanted all, a list of all the incidents involving explosions and injuries and deaths over the last six years going back to 2000.

SYLVIA CHASE: He says he was directed to the Commission's website, where he found lists of incidents with few details. It wasn't the information he was looking for.

BRETT SHIPP: That was part of my resolve at that point was this is going to take awhile.

SYLVIA CHASE: Unlike most oil and gas regulators across the nation, the three Texas Railroad Commissioners are elected rather than appointed. Michael Williams is the Commission's Chairman.

ANDREW WHEAT: Three commissioners, statewide office they spend on average 1.6 million dollars to get elected to that office. A winning campaign. And they take a lot of special interest money from the very industry that they regulate.

SYLVIA CHASE: One of Shipp's sources for his reporting was Andrew Wheat, head of research for a political watchdog organization in Austin, Texans for Public Justice.

ANDREW WHEAT: Here on this screen we have the top contributors to "Friends of Michael Williams." Who are Michael Williams' friends? Here at the top we have $50,000 category. We have two donors. One is West Texas Gas.

SYLVIA CHASE: According to Wheat's examination of public records, Michael Williams' political campaign chest has taken over 1.2 million dollars from oil and gas interests since 2001.

That sum includes some 60,000 dollars from Atmos Energy, Atmos political action committees, and interests associated with a company called TXU. In 2004, TXU sold Atmos the gas pipeline system at the center of the Wylie accident probe.

The Railroad Commission's safety director is Mary McDaniel.

Five months after the Wylie explosion - the one that killed Benny and Martha Cryer - McDaniel released her final report on the incident. It blamed the explosion on the failure of a "compression coupling," essentially, the connection between the Cryers' gas line and their gas meter.

In this photo from the report, you can see on the left, an orange pipe: the gas service line. On the right is an angled pipe, known as a pre-bent riser, which goes to the meter.

The coupling is what is supposed to join them. If the connection comes apart, as it did in this case, potentially deadly natural gas leaks out.

Brett Shipp would soon air this report.

BRETT SHIPP: A state Railroad Commission investigation released last March found that a faulty natural gas coupling under the alley caused the explosion that leveled this house killing Benny and Martha Cryer asleep inside.

In the hours that followed the Wylie explosion, Atmos Energy scoured the neighborhood and found twenty-one defective riser pipes and couplings that needed to be replaced.

Gas leaks were everywhere.

In a letter dated April 25th, Railroad Commission Safety Director Mary McDaniel issued a "safety inquiry" letter to all gas service companies in Texas seeking information about "any leaks or failures of compression risers" and any information regarding the recommended "discontinuance of these risers."

Atmos officials say they have discussed the compression fittings safety issue with Railroad Commission officials and are complying with all requests.

SYLVIA CHASE: But, Shipp understood, the Railroad Commission was not asking Atmos, or any other company, to replace that old equipment. It had only ordered that gas companies "survey" its use.

Something else caught his eye. Though Atmos Energy owned and operated the gas system beneath the Cryers' Wylie home, in the cover letter to her final report, Safety Director McDaniel found "no alleged violations of the applicable safety regulations" on Atmos's part. In fact, she praised Atmos:

"Your efforts to maintain the pipeline facilities have resulted in this favorable report. We appreciate the assistance given during the investigation."

The report said its investigation focused on what it called "third party excavation activities," and suggested that may have caused the explosion.

BRETT SHIPP: That somebody else came in and somebody else caused this pipe to break, somebody else's fault.

SYLVIA CHASE: But though the Railroad Commission had wrapped up its investigation, Brett Shipp was moving steadily forward with his. He traveled to the Commission's headquarters in Austin, the state capital, and asked to see all records related to the Wylie investigation. Because the investigation was closed, the records were publicly available.

BRETT SHIPP: I think one of the key smoking guns that we found on file at the Railroad Commission was this draft report coming from the field investigators.

SYLVIA CHASE: It was a preliminary report about the Wylie blast, one authored by a Railroad Commission engineering specialist who had personally investigated it, Alfred Garcia. And it differed from the final report in one significant detail.

The final report had said the Commission's investigation focused on "third party activities." But that was only partly the case.

BRETT SHIPP: This was their submission to their boss, the Safety Director and their proposal for the wording of the final report to be as follows: "There is a possibility of the separation of the service line from the compression coupling due to shifting of soil due to natural ground movement." In other words, guess what, this compression coupling in the ground pulled out because of the movement in the ground. That's what the investigator and his boss wanted to put in the report. Here is the same page of the final report. What's the cause? "The incident focused on third party excavation activities." No mention of shifting of the soil.

SYLVIA CHASE: If an aging coupling could come apart due to naturally shifting soil, Shipp reasoned, it was possible Atmos should have known of the risk. And this part of the state had plenty of naturally shifting soil.

MARK SMITH: And we could see that there was a real systemic problem, that Dallas, North Texas in particular, with this real expanding soil where we have hot, hot summers, droughts and then huge rainfalls, massive rainfalls that will come in it causes that soil to fluctuate, mixed with these couplings that had been in the ground in many cases for thirty years or more and knowing full well that they are probably wearing out, there was a lot of pressure to try to get this story out there.

SYLVIA CHASE: The reporters didn't appear to be the only ones concerned about compression couplings. Alfred Garcia, the investigator, had recommended in late 2006, some three months before the Commission's final report, "an expedited program to phase out the use of pre-bent risers," which join at the coupling to gas lines.

And as early as 1985, the National Transportation Safety Board had warned of the dangers of pipes pulling out of couplings. But McDaniel's final report had required "no action" by Atmos.

According to Atmos Energy's own estimates, the company still had tens of thousands of compression couplings in the ground.

Brett Shipp thought they might be ticking time bombs. He wondered, how many previous gas explosions could be linked to problems with them. But to find a pattern, he would need more documents.

Then Shipp and Smith remembered the box of documents given to them by Sydna Gordon, the attorney, who had investigated her own parents' death in a gas explosion some six years before.

Though that blast had nothing to do with couplings, Gordon had documents going back decades. The box might be filled with precisely the kind they'd been looking for.

SYDNA GORDON: Compression coupling, 12/19/77 in Temple. Line pulled out of the coupling, 8/13/72 Dallas, 10/29/00 in Little Elm. I was rather surprised when Brett told me that apparently some of these records aren't available anymore so I am very glad that I have them.

BRETT SHIPP: When you have that paper trail that we didn't know existed, she didn't know existed, but it was all in these incident reports that she hadn't gone though that we started going through that showed, wow, the Railroad Commission knew or should have known going back years that they had a problem that they never connected the dots to or didn't want to connect the dots to.

SYLVIA CHASE: Armed with Gordon's documents Smith and Shipp were now able to piece together a pattern of coupling failure that stretched back a quarter century, all across the Dallas area.

MARK SMITH: The first real problem was in Keller, Texas. There was a house explosion where one individual died. That was in 1980. Then in 1998, in Arlington, right here, three people were seriously injured in an explosion. Then in 2000 there was an explosion that killed one person and injured another in North Richland Hills in 2000. Then in 2001 we tracked a case in West Dallas here where four people were badly burned. And then in Wylie, you had the Cryer deaths, the two deaths in October of 2006.

SYLVIA CHASE: Now, Shipp says, he requested interviews with Commissioner Williams, the other two Railroad Commissioners. The requests were denied.

BRETT SHIPP: I knew that time could mean lives and I knew if we sat and waited for them to respond, somebody else could die. In fact somebody else did die, two other people died while we were waiting to get answers.

SYLVIA CHASE: It happened in May of 2007.

JOHN CURNEY: Now this is where Ms. Pawlick was sitting, when they had the first explosion.

SYLVIA CHASE: It was another gas explosion, this in Cleburne, Texas. It would eventually be linked to a faulty coupling. As the team tried to understand the couplings' deadly legacy they learned that other states, including Ohio, New York, and Minnesota, had all had serious problems with the aging piece of gas hardware. In Minnesota in 2004 a huge explosion which killed three led the state to order the removal of 30,000 compression couplings. Shipp wanted to know why Texas had not done the same.

BRETT SHIPP: We are suggesting to the Railroad Commission, folks, we have got some very powerful information that suggests that this is an ongoing problem that you guys knew or should have known about. We want to talk to you about it. I got no response, I was put off, and I had no choice but to go down to the Railroad Commission to get some answers.

SYLVIA CHASE: Shipp returned to Austin to attend a public meeting of the Railroad Commission chaired by Michael Williams.

BRETT SHIPP: "OK, will he be available at some point?"


BRETT SHIPP: "You don't think so." I remembered that day when we showed up unannounced at that commission meeting. The commissioners knew we were in the room, they knew who we were and as soon as the meeting was over they took off out the back door, they were gone. So that left just me and the safety director there to talk about it

SYLVIA CHASE: The safety director was Mary McDaniel, the same official who had found no fault with Atmos Energy in the Wylie investigation.

BRETT SHIPP: "Hey Mary, Brett Shipp with Channel 8 News. Can I talk to you about your concern with the non restraint compression coupling danger that may or may not exist?"

MARY MCDANIEL: "The Commission has initiated a survey a study to look into compression couplings. We started that back in April."


MARY MCDANIEL: "Still working on it and modified it this month of July."

BRETT SHIPP: "But the initial recommendation was to do away with those. The initial recommendation was to have all the gas companies remove those pre-bent risers and compression couplings because of the history of danger and tragedy."

MARY MCDANIEL: "No, that is not what I am aware of. My field inspector had sent a recommendation in his evaluation just dealing with Atmos and when we discussed it he didn't have anything to back that recommendation up."

BRETT SHIPP: "So you don't think there's immanent danger for people in North Texas through failure of these couplings."

MARY MCDANIEL: "At this point, no."


SYLVIA CHASE: After a yearlong investigation, Shipp and his team were ready to go to air.

WFAA NEWSCASTER: Over the past year News 8 has amassed hundreds of documents and spent countless hours to unearth the truth. Our finding that tens of thousands of North Texas lives may be at risk. Investigative reporter Brett Shipp joins us now. He has got details for us. Brett.

BRETT SHIPP: John and Gloria, when Benny and Martha Cryer died in a house explosion in Wylie one year ago the Texas Railroad Commission, the agency that regulates the natural gas industry in this state took over the investigation, but were they really in search of the truth or have they in effect, help bury a deadly secret that lurks beneath the North Texas dirt.

SYLVIA CHASE: Over the next two weeks, WFAA unleashed a 7-part series.

BRETT SHIPP: On file with the state memo after memo dating back to the early 1980s from respected institutions such as the National Transportation Safety Board and the American Gas Association warning gas companies nationwide of the pull-out potential and the couplings limitations. Why? Because people were being killed and injured all over the country. The coupling that leaked and killed the Cryers was installed in 1979 by Lone Star Gas, the company that used to own the current Atmos system. In 1980 the couplings' manufacturer warned Lone Star officials that the couplings "will not meet new federal regulations."

SYLVIA CHASE: Soon after Brett Shipp was back on the air with some big news.

WFAA NEWSCASTER: Reporter Brett Shipp broke this story. He joins us now tonight with an update. Brett.

BRETT SHIPP: Gloria, 2 ½ weeks ago we began airing a series of stories about deadly natural gas fittings still in use under the North Texas soil. We also reported on the reluctance of state regulators, the Texas Railroad Commission, to do anything about it but tomorrow morning in Austin the Railroad Commission is expected to do an about face.

RAILROAD COMMISSIONER WILLIAMS: All in favor of the motion please signify by saying ay. All opposed signified by saying nay. Motion carries.

BRETT SHIPP: Railroad commissioners voted two to one to order an estimated 100,000 unsafe couplings pulled out of the ground immediately. The couplings affected are those attached to gas meters, typically installed in the 50s, 60s and 70s. Railroad Commission chairman, Michael Williams said it was his decision to have the couplings removed and hinted that it had nothing to do with the News 8 investigation.

RAILROAD COMMISSIONER WILLIAMS: Over the course of time, you have to go back and look at the system. Go back and look at your regulatory and safety regime. You have to make improvements and that's what we did today.

SYLVIA CHASE: In May of 2008, Shipp followed up with a report on campaign contributions and the Texas Railroad Commission.

WFAA NEWSCASTER: And a News 8 analysis of Commission Chairman Michael Williams' January campaign reports shows of the $400,000 he's raised, 42 percent came from individuals with ties to the oil and gas industry. Critics say those percentages are hard to ignore.

SYLVIA CHASE: After months of refusing Shipp's interview requests, Williams sat down with the reporter. He defended the commission's integrity and denied any implication that he is a beholden to the oil and gas industry.

MICHAEL WILLIAMS: I reject that notion. I am very, very confident in the fact that I make decisions based upon the facts, based upon good sound policy, based on what I think is in the best interest of my fellow Texans.

SYLVIA CHASE: In November, 2008, Williams was elected to a new six-year term on the Railroad Commission.

As for Brett Shipp, he has received hundreds of emails and calls responding to his reporting. And not just from residents worried about gas leaks. He's gotten tips that have hinted at stories involving serious problems within the oil and gas infrastructure across the state.

BRETT SHIPP: It is my job to make sure that these issues are brought to the public's attention and that the public is educated on the function of this agency so it's all above board. If we quit hearing complaints from people that the system is unfair and people quit dying then we can quit reporting.

SYLVIA CHASE: For now, he says, he's going to stay on that beat.

BRETT SHIPP: OK, here's a retake, coming in 3-2-1.

DEBORAH AMOS: Atmos Energy says that as of November 10th, it has replaced over 37,000 compression couplings. It anticipates removing over 61,000 more by this time next year. The total cost estimated at $45 million dollars.

That's it for the JOURNAL. You can log onto our Web site at for more information about the bailout, midnight regulations or the gas explosion investigation in Texas. Bill Moyers will be back next week, I'm Deborah Amos.

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