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.

Cash for Clunkers - Continued

Well, it looks like it's official (see here), the Senate has now approved an extension of the Cash for Clunkers bill. The bill was either a huge success or a huge expenditure depending on your point of view. It's a redistribution of wealth from the taxpayers (only 50% of Americans) to those who are in a position to buy a car. Or maybe it's another bailout for car manufacturers.

Some interesting information has come out about the program and actually a lot of details have not come out. But so far, it looks like GM has been the biggest winner with 18.7 percent of new sales. Ford has actually seen a profit. From my previous post, I showed how the increase in sales was short lived, so I hope Ford is investing the profit wisely - it won't last.

Another report I saw said that Ford Explorers were the most traded in vehicle along with older mini-vans. My suspicion is that these owners had been waiting to get rid of their "clunkers".

Remember the program had a dual purpose: #1 to help the auto industry and #2 to increase fuel efficiency. If the Ford Explorers and mini-vans were actually being used and the new cars are taking their place, the second goal will have been reached. I suspect the less fuel efficient cars weren't in heavy use and the newer efficient cars will be used by new drivers, thereby increasing overall fuel usage. (I considered selling a clunker and getting my wife a new car, but I didn't qualify).

Details of the clunker program have been hard to find. The AP reports that the "Obama administration is refusing to release government records on its "cash-for-clunkers" rebate program that would substantiate — or undercut — White House claims of the program's success." So despite promises of "transparency in the people’s White House," things seem to be mostly cloudy. I guess like the stimulus plan, we don't have time to be forthcoming, we have to act now.

My main concern though is the change in the program. The program was initially approved (after a lot of discussion) for $1BILLION or until November 1, which ever came first. We've reached the $1BILLION mark, so the program should be ended. The expansion is going on without any real analysis. Everyone's having a good time, so we just go on spending.

Some of my kids have learned (the hard way) that only the Federal Government can continue spending when they run out of money. In this case, the government doesn't even know how much it has. It's like ignoring the balance column in the checkbook register (do people still use those?)

The new bill should have gone the way of the clunkers -- into the shredder. What do you think?

Cash for clunkers

By now you may have heard that the "Cash for Clunkers" program is broke (or not depending on who you listen to). This post is NOT about that issue. The story on that issue is not yet complete. I may post about that in a week or so when all of the facts are out.

Back about a year ago, I posted an entry about the cost of a gallon of gas (about $4 at the time). A year ago when gas was $4/gallon, I made the bold prediction that "the subject of gas prices will be quiet again." (see here).


Well, let's check into the current situation. People have criticized American automotive companies and said that they focused on trucks and SUV's. During times with high gas prices, this hurts auto sales and, according to critics, helped cause the downfall of GM, Chrysler and Ford. However, prices are down now, around $2.20 or so depending on the day. It now appears that SUV sales are back up (according to Bloomberg) and truck sales are also on the rise (see here). Maybe American car companies were focusing on the right markets after all.

Of course, you have to acknowledge that everyone wants to save gas and go green right? Well, Toyota is having a tough year just like the American companies and has decided to close a Mississippi Prius plant even before it opened (see here). In fact, Motor Trend magazine says Toyota is no long profitable in the US. Seems it's not just American cars that are hurting.


So what does this have to do with "Cash for Clunkers"? The program was initially designed to improve fuel mileage on the highways by encouraging consumers to get rid of older, less fuel efficient cars in favor of newer, more fuel efficient cars. A side benefit is that the ailing automotive market (both domestic and foreign) gets a short-term boost.

The program has been tried in other countries as well. Countries such as Slovakia, France, Germany, Spain and Italy have all unveiled a cash-for-clunkers program at various times in the last year according to this NY Times article. And the program has some history as France had a "similar incentive program ... from 1994 to 1996."

How successful will the program be? According to the same NY Times article, the "plan produced a comparable sales bump initially." Sounds great, right? Well the rest of the sentence goes on to say that the initial sales bump "was followed by a severe drop in 1997 and 1998."

So here's my prediction for 2009 and it will basically echo the prediction from 2008. Americans are less concerned about fuel efficiency than they are about the size of the vehicle (see SUV sales and truck sales above). People will trade in cars under the plan and get minimal improved gas mileage (2 mpg improvement for trucks and 4mpg improvement for cars is the minimum to get the cash). More importantly, these people will take out 4, 5 or 6 year loans to pay for these cars and find that they have trouble making the payments or making their other payments (e.g. mortgage). Next year, we'll all be worse off.

And the country will be no greener than it is today.

Gas prices

Last night it cost me over $70 to fill up. This was the first fill-up since Saturday and my travel schedule this week is light, so it's not likely to need a refill until sometime next week. Part of the high cost is the tank size, I was almost on empty and it took a little over 20 gallons to fill up. Gas prices are up all over, fortunately, SC is one of the lowest priced areas in the US.

So what is there to do about the price? Well, one option being thrown out is to eliminate the gas tax. That's around 20cents/gallon. So I would have saved a little under $4 last night. Hmm. I could have purchased a happy meal, but not much else.

Another idea is to establish a "windfall profits tax" on the oil companues. This basically would cap the profit Exxon makes. Hmm. When I studied economics, this was caused a ceiling. Ceilings on price, reduce supply. Reduction in supply means I would have walked the last 10 miles home last night as the gas station would have been out of gas.

Another idea is to reduce consumption. I like this idea. Tell all my customers I won't visit anymore. Of course, that means they won't buy any more and I'll be out of a job. If I'm out of a job, I lose my house and won't be able to eat. Of course, I'd lose weight, but the rest of that is bad. So, after a second thought, I don't like this idea.

So, let's see, if the government wants to do any one thing, it makes matters worse. What if the government takes over all of it? What if the government takes over the oil companies, eliminates profits all together and sells the gas? Anything a private company can do, the government can do better?

In fact, let's not stop with oil companies. Groceries are getting expensive too. Let's have Uncle Sam run the local stores. Then they need to own the farms and food companies where the groceries come from.

I have a vague memory that this has happened before, but can't recall where?

Proof that the right saves more gas than the left

With gas prices (back down for the moment), everyone wants to save gas. And some are concerned about global warming and all should be concerned about polutting less.

So if you knew a way to save gas (and $$) an pollute less that didn't cost you anything, would you listen?

Seem UPS has found that making right turns instead of left turns saves gas. Company reps say it decreases the amount of time idling, which will, in turn, make each vehicle more fuel-efficient. On an individual truck-by-truck basis, the difference in fuel efficiency is minimal, but on a fleet level, the increase in fuel economy becomes quite significant.

Additionally, making right turns leads to less accidents than making left turns, thereby increasing your life expectancy and reduces the need for goverment sponsored health care.

So, UPS has given us proof that the right is better than the left.

See the article here.