Sunday, June 13, 2010
BP as supplier to US war machine, will be protected, but what about everyone else?
by Larry Geller
Strange, isn’t it, that BP is calling the shots in the cleanup of the oil disaster they caused. Well, maybe not so strange in this administration. After all, Obama appointed the bankers that caused the Wall Street meltdown to fix their mess also.
In both cases, average people lose.
Why am I not surprised?
This is from today’s Progressive Review email by Sam Smith. As usual, he includes a couple of quotes at the top, headlined “Word.”
The U.S. doesn’t win wars anymore. We just funnel the stressed and underpaid troops in and out of the combat zones, while all the while showering taxpayer billions on the contractors and giant corporations that view the horrors of war as a heaven-sent bonanza. BP, as we’ve been told repeatedly recently, is one of the largest suppliers of fuel to the wartime U.S. military. - Bob Herbert, NY Times
Aha. So that’s why BP is in charge of the cleanup.
And maybe why they would get a bailout if they declared bankruptcy to escape from their obligations to make good on damages caused by their spill.
BP CEO Tony Hayward cashed in about one third of his stock holdings a month before the disaster, and BP plans to pay out its stock dividend (see: The Telegraph (UK), BP chief Tony Hayward sold shares weeks before oil spill, 6/5/2010). So he is ok.
Mr Hayward, whose pay package is £4 million a year, then paid off the mortgage on his family’s mansion in Kent, which is estimated to be valued at more than £1.2 million.
As several analysts have pointed out, BP can probably afford to pay the damages they might be held to according to current estimates. This does not mean that declaring bankruptcy might not be a good strategy for them. Here is one discussion:
If history is any guide, a prepackaged strategic bankruptcy it might not be fatal to shareholders.
If memory serves me, various other proactive bankruptcies worked to shareholders’ advantages: — AH Robbins issues with their purchase of Dalkon Shield led to billions in settlements, an eventual bankruptcy, and a huge sale to Wyeth (formerly AHP). Texaco did something similar after the Pennzoil litigation, as did many of the various Asbestos exposures. And Merck, which did not go chapter 11, seemed to come out OK of the Vioxx problem (if you bought the stock at the right time).
A strategic bankruptcy can “ringfence” losses from the income earning portions of a company. It creates a fixed, known amount, rather than some unknown future sum. Getting rid of that sword of Damocles allows the rest of the company, to (in theory) prosper.
Surprise!: Bankruptcy can actually work too shareholders’ advantages . . . [The Big Picture, 10 Thoughts for Those Buying (or Selling) BP…, 6/10/2010]
So they may not be able to contain the oil slicks with their booms, but they can “ringfence” losses with a strategic bankruptcy. Since the feds need BP for the ongoing war, and since so many other companies profit from the war, it’s likely that BP would be declared “too big to fail” and let off the hook or bailed out.
And the shrimp fisherman and everyone else affected might lose, or become the responsibility of the federal government.
Why would I not be surprised?
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