After all the whining about President Obama’s speech (undeserved, in my opinion), today we learn that:
- BP has agreed to a twenty billion dollar escrow, which is the beginning (not the end) of their exposure, and,
- BP has announced that it will stop paying dividends for three successive quarters
From the piece (emphasis mine):
BP Plc, seen as a rising default risk by credit investors, scrapped dividends and pledged asset sales to meet President Barack Obama’s demand for a $20 billion fund to compensate victims of the U.S.’s worst oil spill.
BP’s Chairman Carl-Henric Svanberg visited the White House today and agreed on payments over four years to finance an independent body that will settle claims resulting from a damaged oil well that’s spewing as much as 60,000 barrels of crude a day into the Gulf of Mexico.
and
The company said in a statement it will cancel the first- quarter dividend, already announced at 14 cents a share in April and due for payment June 21. Dividend payments for the second and third quarters also will be canceled, saving a total of $7.5 billion. The company will review the dividend policy in early 2011, Grote said.
I’d say this is a big win for President Obama.
but what I’ve learned from the last 17 months is to not take what President Obama says too seriously, at least not initially. It’s important to positively reinforce when he does something right, but I’m not convinced we know the whole story. Who will be running the independent body? If this independent body doesn’t carry out it’s mission properly, who will step in to correct the situation? Did we give anything back in return for this agreement?
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p>So I’m just not ready to call this a big win yet, but on the surface, it appears like a step in the right direction.
Published accounts report that Kenneth Feinberg will oversee the new fund:
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p>In my view, today’s two steps forward are hugely more important than the carping and whining (sadly, from Democrats as well as Republicans) that greeted his first Oval Office address.
I agree it is a step in the right direction, but as liveandletlive writes, time will really be the best judge.
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p>I would say that relative to the administration’s performance to date, this is a step in the right direction.
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p>The problem is that the disaster is getting worse and worse with every passing day. $20 billion is a number that would perhaps have been dismissed as laughable five weeks ago. Today, it sounds like a down payment but likely not a full accounting. Note that as the government has taken more control, and gotten more information about the flow rate and BP’s steps in response to the catastrophe, what previously had seemed radical has, in perspective, come to seem ridiculously conservative.
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p>Six weeks from now, especially if a hurricane blows through, current commitments may sound like peanuts compared to an economic loss larger than any previous disaster.
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p>Time will tell.
Has ANY other administration done ANYTHING comparable?
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p>Can you offer any similar escrow account established so soon after a catastrophe?
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p>Can you offer any example where another major corporate entity has canceled dividends in response to administration pressure?
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p>Maybe I’m having a senior moment, but I sincerely don’t remember anything like this in my life.
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p>I’m not minimizing the risks that remain, nor the impact of the catastrophe (and neither, I might add, is President Obama). In my view, the initial BP estimates were horribly, tragically, and (I hope) criminally understated. I think the government, and President Obama specifically, have ramped up rather successfully. For example, I think that all the evidence suggests that Coast Guard, NASA, and other government officials are working very hard to establish and publish realistic statements of what we’re actually dealing with. I can’t imagine a Bush (either one) or Reagan administration doing anything comparable.
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p>It’s a terrible, catastrophic situation. I think it’s very likely that BP will face criminal prosecution. I also think that President Obama is taking about the right steps at about the right pace to address the catastrophe. That’s good enough for me.
The second Bank of the United States was probably about as powerful as the Fed plus the largest Wall Street banks combined are at present, or maybe more powerful, speaking in broad terms.
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p>But if you don’t want to go as far back as 1829, then you might consider the break-ups of Standard Oil and AT&T, both corporations that had outlived their social utility, or the corporate death sentences decreed and executed on BCCI and, later, Arthur Anderson for malfeasance.
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p>In comparison with what was done to Arthur Anderson in 2002, the actions taken with respect to B.P. are mild.
Let’s indict BP and conduct a trial that ends in a constitutionally deficient conviction. Of course, Arthur Anderson, being a services firm, would not have survived anyway at any point after the indictment.
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p>And, of course, BP not being a services firm, would survive a prosecution, as it has before.
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p>So, you and Robert Reich want the government to simply seize the company’s assets, which is nice, but also has no basis in law–not even for national security purposes, as President Truman discovered.
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p>And, even if these assets are seized by the government, what would the government do with them? Who in the government has any expertise in capping a well at this depth?
The comparison is a strange one. Andersen sold one thing: Andersen. It’s brand name was valuable because everyone knew that you could trust it’s services. Andersen threw that out the window, and as a result the company started failing immediately after the Enron-Andersen connection broke.
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p>BP sells one thing: carbon fuel, commodities whose price is entirely determined by a competitive marketplace. They don’t really even sell BP oil: they pull oil from the ground and sell it to everyone without the BP name on it.*
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p>It’s true that tUSA killed of AA’s accounting business, and then the SCOTUS voted 9-0 to give it back. The damage to reputation had already been done though; clients lost and employees gone. Unfortunately, the marketplace won’t — can’t — be the same for BP. Simply put, you can either use oil and gas and therefore use BP’s, or you can avoid using it altogether. Unlike choosing KPMG instead of Andersen, there’s no way to avoid BP.
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p> * Those BP gas stations: they buy oil from any refinery, and then there are BP chemical additives mixed in to the generic gasoline.
BP has about twenty five times the revenue of Arthur Anderson — Arthur Anderson reported annual revenues of $9.3B in 2002. By comparison, BP reported annual earnings of $239B in the most recent year (2009).
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p>The Arthur Anderson dissolution came as a result of a court conviction (later reversed) in June of 2002, nearly a year after Enron imploded in the previous October. The $20B down payment occurred fifty eight days ago. Eric Holder is already investigating BP. President Obama has already secured twenty billion dollars (as an initial contribution) — no court cases, no congressional hearings, nothing except the skillful exercise of executive and political leverage.
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p>The actions we’re seeing against BP are the beginning, the Arthur Anderson case you cite was the end.
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p>Those who attack President Obama because he isn’t moving fast enough against BP are striving mightily to snatch defeat from the jaws of victory.
and, in exchange, I’m certain that Obama agreed to cap liability and not pursue criminal charges.
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p>When things calm down, in a year or two, BP will stop making payments. So their total will only be $5-$10 billion, a fraction of what’s needed to make the victims whole.
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p>Once again, working families will pay for this.
Certain? I don’t think that word means what you think that word means.
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p>Stay here in reality Manny. You can suspect it, you can predict it, but you are certainly NOT certain of it.
BP’s been evasive and uncooperative to date, and they’re facing the possibility of staggering penalties and criminal prosecution. What are the odds that they’d suddenly have an awakening and decide to do the right thing, no strings attached? No way it happened without a quid pro quo.
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p>Second, we know that the Obama Administration is willing to bargain away the most important stuff in order to get a PR victory – just look at HCR and the no-longer-secret deals with pharma, docs, and hospitals. I’m sure that Rahm’s failure-fingers are all over this one.
and no, charity ain’t one of ’em.
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p>If BP believes the odds are strong that they’ll be on the hook for at least $20B anyway, then agreeing to cough it up now under terms which don’t dissolve the company both reduce risk and pick up some free PR, both w.r.t. the general public and w.r.t. future judge/jury or regulators.
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p>I don’t know what BP’s ultimate liability will be. I do know that you’re not certain of anything in any factual sense of the word.
It is naive to believe the politicians work for We The People. They work for the people that line their pockets with gold. They are good at that. That’s why they are in business.
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p>We have an administration that is an excellent master of public relations. Teamed with the public relations ability of BP and legal expertise of both government and corporate staffs, any agreement will have the wiggle room either for BP to walk away or get a bonus. (I’m quite surprised they didn’t do a telethon as they did after 9/11 to get We The People to donate cash. Too tacky?)
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p>While I’d love to sing, “Glorious!, Glorious!, Our fearless leaders have saved the fish and fowl and made the workers whole.”; I think I’ll wait and count the winnings away from the table.
Just when you think the Democrats’ response is “weak”, the Republicans show they’re worse. Does it remind anyone of Senator Pat Geary (played by GD Spradlin) in Godfather II?
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p>You just can’t make this stuff up. These inmates run our asylum.
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p>If the way the Obama Administration has handled the PR of the spill represents “mastery”, then I’d have to say that your bar is set pretty low.
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p>And it’s fine to be skeptical, but I’d hope that you’d give credit where credit is due when the government does something good. Republicans have been quite successful in the last 30 years convincing Americans that everything the government does is horrible, so they don’t need any help from the left.
but the actions that happened today are perhaps the first step in the right direction since this entire mess happened.
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p>If Obama was going to announce this stuff today, he should have waited for the speech 24 hours.
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p>I still have some questions.
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p>Don’t get me wrong, this is a real, good step in the right direction… but I caution everyone to put their Skeptical Hats on today, because BP will try to save every dime and shirk every responsibility it can… and it’ll have the patience of decades to do so. The first second our attention is diverted, BP will take us to the bank…. and, for the next two+ years, it largely rests in Obama’s hands to be the one paying the bulk of the attention.
Though certainly $20 billion must be only the beginning, since the total price tag for the damage and economic impact will surely be much greater. Still, it’s a very good thing that the money will not only have to be clawed out of BP via federal, state, and private lawsuits (which will and should continue). Payments will be much more efficiency handled with this escrow.
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p>Also significant, Obama got BP’s agreement to contribute $100 million to help support employees in the oil industry who are unemployed because of the drilling moratorium. It just got a lot harder for Republicans to carp that Obama is hurting working people with the drilling ban.