Monday, June 14, 2010

Oil spill - Obama's Katrina or Obama's 9/11?

Unless you've lived in a cave the last several weeks, you've heard all about the oil spill in the Gulf of Mexico. You know that BP is in charge and that President Obama's mad.

Reports on how much oil is spilling depends on who you ask. I'm thinking about going down to Louisiana and making up a number myself so I can get on the news. But this article puts the spill at between 1 and 2 million barrels or 42 to 84 million gallons of oil.

Reports also keep reminding us that this oil spill is the worst in US History. However, what they don't tell you is that it is the 4th or 10th worst spill in world history (depending on whether you believe it's 1 million barrels or 2 million barrels). The source for that number is here.

I'm not trying to minimize the effects of the spill. It's a mess and it's still going. It will have to be cleaned up and the environmental and economic impact are going to be tremendous. But the question I want to address is - is this event Obama's Katrina or 9/11?

First let's remember that Katrina was a natural disaster and 9/11 was a terrorist act. The comparison to Katrina is more about the president's response. The only way I can understand the comparison to 9/11 is to look at America's response - anger.

Unlike some of my counterparts, I don't fault President Obama for his early-on lack of attention to the issue. This doesn't seem like a problem the federal government is equipped - or should be equipped - to handle. It is a matter for private business. Certainly BP needs to go to court for any criminal and civil statutes that apply. I'm hoping that congress doesn't get silly and try to pass some retroactive laws to punish BP after-the-fact.

I also don't see the comparison to 9/11 being anger. Anger doesn't help us solve the problem and removes a lot of objectivity to the problem. I for one hope that all Americans, especially the president, will cool their anger, resist kicking someone's derriere and work towards a common solution. Once the spill is stopped and the cleanup can be sized, then it's time to take a look at the legalities.

There's been a lot of talk about the penalties that BP should face on this matter. But before we look at that, let's look at who gets penalized. Since BP is a publicly traded company, you can go to this site and see who owns stock. (as a disclaimer - this only covers shares in the American Depository, I'm not sure how to find foreign shares).

A quick glance of majority holders shows that Bank of America and Wells Fargo are near the top. These are two popular targets for other reasons, but it also means that every person with an account at either of these banks has some stake in BP's success or failure. Same goes for anyone who has an IRA/401K with T. Rowe Price, Morgan Stanley, Vanguard, Fidelity and some other well known mutual funds.

But wait, there's one name on the list that surprised me. It seems that the Bill & Melinda Gates Foundation owns a little over 7 MILLION shares. I thought they were into green energy? I guess they have all the loyalty of former VP Gore when it comes to doing what they say.

So punishing BP is going to punish a lot of people you & I know. Yes, they need to clean up the mess and to some degree, they need to compensate people whose jobs are impacted. But jobs come and jobs go, the people who are missing out on work have an obligation to look for new jobs. Several of my co-workers have lost jobs in the last few years, and it wasn't due to an oil spill.

Some are using this as an excuse to stop drilling. I'm not changing my perception. We need to drill. We need to look at solar, wind and any other kind of energy we can get. But it shouldn't be a federal responsibility. Private companies should (and are) look for alternatives. While we continue to use the energy we know about and have been given.

Lastly, we as Americans, need to watch this carefully. I'm firmly convinced that if BP was an American company, this administration would have already taken steps to nationalize it or give it to the unions (ala GM). Our country has been the preferred safe haven for foreign investments because (traditionally) we don't do that. Companies stand or fall on their own merits. The current administration has meddled too much for my comfort and I suspect foreign investors are watching carefully.


Ashley Beth said...

A few things:

1) I love the new look! I normally read your blog through Google Reader so I hadn't noticed.

2) I have a bank account with Wachovia (Wells Fargo) and a mortgage with Wells Fargo. I don't see how Wells Fargo having stock in BP would negatively affect me.

3) I DO think that BP should pay out damages - not sure how much, but it seems to me they were extremely irresponsible and are still being irresponsible about this oil spill. Weeks later I'm still not sure we know the whole truth and that is uncalled for.

Randy said...

1) Glad you like the look. As you know, for me to change is major.

2) How can WF having stock in BP affect you? Well, BP's stock is down about 50%. That means WF's investment (in this area) is down. BP has canceled it's dividend payments, so WF is going to miss out on some income. While your mortgage rate is set by your mortgage note, your savings/checking account may have additional charges due to reduced income.

3)I agree BP should pay charges. We just shouldn't jump up and down and find someone's derriere to kick.

Ashley Beth said...

I'm always forgetting to come back d check for answers, but I remembered today. I'm guessing the whole WF thing will affect others more than me since I have a fixed rate mortgage and a free checking account. The checking account may have a lower interest rate, but when the rate is already .00xx and I don't keep much in there I probably won't even notice. So who are these people? What kind of accounts/loans/whatever do they have with WF where they are going to really notice this?

Randy said...

Ashley, the truth is that the lower dividends to WF will be aggregated over so many people that you won't notice a difference. The T's&C's on your free checking may get a little tighter. After all, WF needs their profit and if they don't get it from BP, they'll get it somewhere.

My whole answer is about this "punishment" thing. As I said, they need to clean up the mess. But punishment on top of that seems a little vindictive.