Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelertoing Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Washington Mafia's $20 Billion Shakedown of BP

Politics / US Politics Jun 19, 2010 - 07:41 AM GMT

By: LewRockwell


Best Financial Markets Analysis ArticleJim Davies writes: I was very disappointed to hear how the D.C. Mafia had subjected BP to what the possibly vertebrate Joe Barton (R-TX) called a "shakedown" for $20B to compensate those hurt by its oil spill, but had also made the company agree not to cap that sum (meaning the bill may be higher yet) and to let a government nominee administer the payments (meaning it is almost sure to be higher yet).

Coupled with yet more apologies outside the White House, and inside Congress to the monotonously loathsome Henry Waxman (D-CA), this looked like an abject capitulation; for it has not yet been established that BP is even to blame for the spill, and the law – which government wrote – limits its liability anyway to $75 million. That was the basis on which BP hunted for oil, and on which its owners invested their money. Now that it has voluntarily exceeded that limit by a factor of at least 267, who can ever trust its word again?

The word of the Company, that is. The word of government has long ago been recognized as worthless, for if it finds any of its laws inconvenient (like the one that taxes the income only of those made legally "liable" for it) it will simply ignore them and do what it wants. We know that. But BP is not government. Is it?

After a sleepless night worrying about all this, of which more below, I pulled up BP's Annual Report for 2009, to see if there's another way to look at this financial disaster.

Perhaps things may not be quite as bad as they seem. The Company made sales of $246 billion in that year, of which $25.1B was "profit before taxation" – that's 10.2%, not bad. Then taxation by the world's governments confiscated $8.4B of it, or 33%. That left net, after-tax profits for shareholders of $16.7 billion or 88 cents a share.

The Obamagrab means BP will cancel its remaining three 2010 dividend payments, and if 2010 is as good a year as 2009 (one source suggests it may not be) then three quarters of $16.7B is to be diverted from shareholders to the government's nominee. That's $12.5 billion.

However, to obtain that sum BP has to earn pre-tax profits of (12.5 / 0.67 =) $18.7 billion, and the $20B payment will presumably come out of pre-tax profits. Accordingly, if BP ends up paying $20B, it will be "only" (20 – 18.7 =) $1.3 billion out of pocket this year. Plus what it will spend on a new rig, overtime, cleanup, and so forth. But the total may be no more than around 1% of its sales or a tenth of its profits. Nasty, but not crippling.

What, meantime, will this plunder mean for Americans? – some 40% of BP's shares are held in this country, many of them on behalf of pensioners. So a few million seniors, dependent on hitherto reliable BP dividends, are going to run short this year; in effect, wealth will be transferred from them to younger, more active recipients on the Gulf Coast. I don't say that's wrong, mind; it's proper that owners of a company do the right thing by those it damages, but only to the extent that law or (far preferably) contract provides. Here, BP is having to buy favor in Washington by stiffing its owners. Like all Faustian bargains, the favor will be a phantom.

Government transfers are never fast, and always expensive – the bureau-rats administering them always manage to skim off a rich layer for themselves – so those idled fishermen and hoteliers may have to wait a while. Some of them are already complaining that BP is too slow, and now that the Feds have the job of making payments, they will find out what waiting really means. That will increase hostility to Washington, and so is no bad result. One other potentially good result is that scrutiny of applications for money is likely to be poor (what do b-rats know about meeting small-business payrolls?). This $20 billion could prove a bonanza for all manner of malingerers and spongers, so rather than complain, why not join them? Above, I mentioned my sleepless night. I do worry about this matter, it deprives me of rest and brings emotional distress. I'm not sure how to put a price on that damage, but think it cannot be less than $1,000. Where's the application form?

Another class of applications might reasonably come from those pensioners, deprived of their dividends – deprived, not by the accident on BP's rig but by the shameful deal with the devil that Carl-Henric Svanberg and his men felt obliged to strike. They will be suffering, so why not ask for compensation? There's no fee for applying, is there, so what have they to lose? That would be farcical indeed; the government taketh away with one hand, and giveth with the other. But when one thinks about that, government never does anything else.

What will the Company get, for its net billion or two? – very little, and that's a problem. It will fix the mess, stop the gusher, raise a new rig, pay the promised money. Then it will bounce back and continue to bring us competitively priced gasoline for our thirsty tanks. But its deeply humiliated officers will not forget this extortion, or just in case they might, I hope everyone reading this will buy a share or two (they are rather well-priced, about now) so that at the next Annual General Meeting or three, they can be reminded. Then, I expect that the next time America needs a favor from this multi-national giant, its attention may focus on some more deserving need on the far side of the world. Next time there's a shortage, as in 1979, tankers may be diverted to Japan, or Germany. Next time there's a price bubble, as in 2008, BP's ears may be tuned to the needs of Indian customers, or those back home in Britain. What goes around, comes around – long after Obama has left office and Salazar's jackboots are back in the closet.

Lastly, what might have happened in a free society, had such an accident as this taken place? Suppose government didn't exist, but that Deepwater Horizon blew up, and the blowout preventer failed to activate. What next?

Note, there would have been no law-based liability limit of $75 million, so there would have been a much stronger incentive on BP to make sure that none of the above ever took place. Still, accidents happen. Suppose it did. Oil would still have gushed, but two things would then have happened very differently.

First, application of that detergent-like compound which BP started to use but stopped on EPA orders, might not have ended. That way, the quantity of oil on the surface would have been substantially less than is now landing. Possibly the detergent itself would damage someone, but the responsible company itself would make the judgment and take that risk, optimizing its predicted, respective liabilities. As it is, a lot of the oil in the marshes and beach sand is there because of the EPA, and the EPA isn't going to compensate anybody.

Second, the Company would have welcomed all manner of help from all manner of people offering it; it tried to do that anyway, but government stepped in and told boat captains to stay in port. Many more would have been at work, moving booms and skimming oil; my wise friend Elmo Zoneball suggests that BP would simply have offered to buy oil recovered from the sea by any method, at whatever rewards per barrel were sufficient to prevent it drifting on-shore. Who knows what ways would be found? Even domestic vacuum cleaners might have been rigged (in reverse) to pump the stuff. Those clever Floridians who demonstrated on YouTube how ordinary hay soaks up oil from water would have taken their Bayliners out to collect as much as they could, and thousands like them; at hundreds of dollars a barrel, there would have been few idle hands around the Gulf. It would have been a kind of peacetime, for-profit Dunkirk.

Such will be the power of the free market, when it is unleashed.

Jim Davies [send him mail] is a retired businessman in New Hampshire who led the development of an on-line school of liberty in 2006, who expects to experience a free society in his lifetime, and who in 2008 wrote the books A Vision of Liberty, Transition to Liberty, and, in 2010, Denial of Liberty and To FREEDOM from Fascism, America!

    © 2010 Copyright - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules