That $20 Billion
by Jim Davies
by Jim Davies: The
Recovery of Stolen Roads
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
Annual Report for 2009, to see if there's another way to look
at this financial disaster.
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.
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.
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.
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.
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?
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.
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
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.
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.
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
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,
Such will be
the power of the free market, when it is unleashed.
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 by LewRockwell.com. Permission to reprint in whole or in
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