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Old 06-10-2010, 07:03 AM   #1 (permalink)
roachboy
 
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bp and the "too big to fail" argument

this spins out of the long thread in general discussion about the deepwater horizon fiasco in the gulf of mexico. alot of the background information (to the extent we know the really relevant background information---and that's not obvious) is there, so for convenience sake, here's the link:

http://www.tfproject.org/tfp/general...oil-spill.html

but i think what's happening to bp financially and the political fallout that's starting to take shape is interesting and raises some awkward questions for just about everyone---i think no matter your viewpoint there's something about this that'll piss you off. so.

from this morning's financial times:
Quote:
BP shares continue slide after US attacks

By Jean Eaglesham in London, Matthew Green in Kabul and Michael Hunter in London

Published: June 9 2010 18:36 | Last updated: June 10 2010 15:06

Shares in BP lost further ground on Thursday on growing concern about the impact of the Gulf of Mexico oil spill on the company’s financial health.


The potential cost of the crisis, and fresh fears over whether BP will pay its dividend, sent the shares tumbling 11 per cent at the open, The stock, which on Wednesday closed below 400p for the first time since October 2008, recovered some of those losses to stand 3.2 per cent lower at 380p by midday in London on Thursday.

But as US trading started, the stock was under more pressure, losing 7.3 per cent to 361.6p, even as its American Depositary Receipts, instruments that allow US investors exposure to its shares without a full listing on an exchange there, recovered from 14-year lows in a sell-off over the previous session. As New York markets opened, BP’s ADRs rose from their Wednesday close of $29.20 to $32.14.

The fall in the share price followed a near-16 per cent drop in New York overnight for the company’s American Depositary Receipts, which have now halved since the accident on April 20.

The cost of insuring BP debt against default also rose sharply, with five-year credit default swaps quoted at 510 basis points at one stage, having closed at 386 basis points on Wednesday. That means it would cost $510,000 a year over five years to protect $10m of BP bonds from default. At these levels, the market is indicating a “junk” rating on BP’s debt.

BP said in a statement on Thursday that it was “not aware of any reason” for the sharp fall in its ADRs. It said that its “strong and valuable” asset base , and its strong cash inflows and outflows, “gives us significant capacity and flexibility in dealing with the cost of responding to the incident, the environmental remediation and the payment of legitimate claims.which justifies this share price movement.“BP share price

The severe market reaction came as UK industry expressed alarm at the “inappropriate” and increasingly aggressive rhetoric being deployed against BP by Barack Obama, US president, and warned that the attacks on the oil company could damage transatlantic relations.

Adopting a more emollient tone, David Cameron, UK prime minister, said on Thursday that the British government stood ready to help BP with its clean-up efforts and that he completely understood US frustration. Speaking on a visit to Kabul, he said he would be discussing the “environmental catastrophe” with President Obama, with whom he is due to talk on the telephone over the weekend.

The concerns of the UK business community come amid mounting unease in Britain that attacks on BP for its handling of the Gulf of Mexico oil spill are being dictated by the politics of November’s midterm Congressional elections rather than normal regulatory considerations.

Repeated references by senior US politicians to “British Petroleum” – which has not been the company’s name since 1998 – have fuelled fears of a wider backlash against UK companies.

Richard Lambert, director-general of the CBI, the UK employers’ group, said the presidential attack was “obviously a matter of concern – politicians getting heavily involved in business in this way always is”.

Mr Lambert suggested the White House strategy was misplaced. He said: “Apart from anything else, BP is a vital part of the US energy infrastructure. So the US has an interest in the welfare of BP, as much as the rest of the world does”.

Miles Templeman, director-general of the UK’s Institute of Directors, said he was “very concerned – this sort of political rhetoric is inappropriate”.

He said that British business appreciated the gravity of the spill but warned: “There is a danger that ... there will be a prejudice against British companies because of it.”

The White House has kept up pressure on BP, telling the company to pay the salaries of all workers laid off by an offshore drilling moratorium as well as the other costs of the disaster.

Robert Gibbs, White House press secretary, said: “We believe it’s an economic damage caused by this, not unlike losing business at your bait-and-tackle shop.”

The White House did not respond to requests for comment. The British Embassy in Washington said it had not received any specific request for help from BP but was in contact with the administration and the company.

BP added on Thursday that the cost to date of the response to the spill was approximately $1.43bn, including the cost of the spill response, containment, relief well drilling, grants to the Gulf states, claims paid, and federal costs. It repeated that it was too early to quantify other potential costs and liabilities associated with the incident.
FT.com / Companies / Oil & Gas - BP shares continue slide after US attacks

at one level, what we have here is bp's information management program, which was far more prepared for this than was the production side (that's another matter) is responding to the rapid tank of bp share prices, which are down some 47% over the past 50 days or so of unmitigated ecological disaster and which took a considerable dive (11% at opening) yesterday. problems are starting to surface at the level of short-term commercial paper for bp. the spike in default insurance rates means that bp's paper just acquired the status of junk bonds.

this is not good for poor corporate person bp.

David Cameron admits sympathy with Obama before discussing BP crisis | Business | guardian.co.uk

this is a wider-angle story from this mornings guardian that talks about the understanding of cause for this financial scenario: that the bullies in the obama administration are being mean to poor corporate person bp who clearly made a giant mess but didn't mean to. the administration has the audacity to demand that bp address the impact of their disaster on a range of stakeholders in addition to make their disaster stop and clean up their disaster. worse, from the enlightened viewpoint of the holders of capital, the administration is threatening to block bp's payments of dividends.

the response from bp is interesting, if predictable: they are now painting themselves as a victim. and they are combining what the administration is doing with grassroots responses like seize bp and silly things that have been said about people with uk accents who speak on behalf of bp are lying to make of themselves the victim of some xenophobia. it's amazingly cynical. conversely, bp sees itself as the victim of a political vendetta. bp sees itself as anything and everything but responsible for a massive disaster and in the process of paying the consequences. along with everyone and everything that depends on the gulf of mexico. but that's all less real than money.


what's happening to bp financially, that the consequences of the gulf disaster, economic and political, are endangering the whole of bp.
and the argument is being constructed that bp is too big to fail.
it's too important to the uk.
it's shares are held by a very wide range of pension funds and muncipalities.
it is a very large employer.
it is a significant source of state revenues
it is the only entity capable of stopping the disaster in the gulf (thanks to the petro-capitalist regulation system that the us adopted)

so what happens if bp goes out of business?
can it?
should it?

what do you make of this "too big to fail" argument?

{{for example, i would imagine that a situation like what's befalling bp should encourage people and the institutions they animate to seriously reconsider the wisdom of allowing pension funds and municipalities to play the stock market. that **only** makes sense if you assume expansion is a steady state, that risk is an abstraction in the way that winning is an abstraction in las vegas.

what is the point of allowing institutions that control the retirement funds of regular folk to invest in stock?
one thing it does is break up the distinction between the interests of capital and the interests of working people---so buys a form of political consent for the cowboy capitalist order---but it also exposes vulnerable people to potentially catastrophic situations that no amount of schumpeter banalities about "creative destruction" will change.}

what do you make of this situation?
it looks to me like the possibility of financial implosion places an arbitrary brake on the capacity for a state to hold a corporate person accountable for the actions undertaken by that corporate person.


do you think bp should be seized?
what would happen then?
do you think bp should be allowed to reorganize in order to quarantine the deepwater losses in some special fictional corporate person whose corporate person head is full of toxins?

how is a transnational corporation ultimately held accountable for its actions by a national government if there's no transnational legal system to appeal to?

lots of questions. i've only thought of a few.
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Last edited by roachboy; 06-10-2010 at 07:09 AM..
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