Is BP Too Big To Fail?

Tyler Durden's picture

Dylan Ratigan draws some rather obvious parallels between AIG and the recent TBTF banking episode, and the possible fate of BP, whose failure would doom, among others, the retirement funds of Scottish widows, as we noted previously in disclosing the key holders of BP stock. Will the US president be willing to push BP to the point where a bankruptcy of BP results in international diplomatic outcry over what could be the next TBTF precedent? Surely BP is aware of this catch 22, and is thus willing to apply the modern version of American capitalism: "the risk taker uses the leverage of their size and importance to so many people to transfer the risk they've created to the government and future generations, while keeping the rewards of all the risks that they've taken, negligent repair, you pick the thing - they keep the money, you keep the problem. This seems to have become the new version of American capitalism: extortion and bribery." In this clip, in which Ratigan tears apart BP's Darryl Willis (worth watching in itself to see how TV anchors don't always have to bow down to their guests, David Faber feel free to take notice), BP seems to have painted itself in a diplomatic corner: "We will pay claims until we are done paying claims... We are going to pay the damages caused by this spill to every person who has been hurt, harmed and damaged." Alas, this does not leave much maneuvering room for the former oil giant. As for the question of how BP can afford to pay a $10 billion dividend in light of what seems to be a tide of approaching claims payments, Willis does not provide an answer. BP's CDS spread, however, does.

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Nihilarian's picture

 Yeah, BP, instead of filing for bankruptcy, will be forced by Obama to buy a local bank, and then Bernanke will Fed-fund the "BP-funded" cleanup program. 

The Rock's picture

Obama has nothing to do with this. He just sits there and tries to look serious. Bennie, on the other hand, is the BOMC and can "pull a GS" by waving his "magic stick" and claim BP is now a bank. Next!!

FreddyInBangkok's picture

British Overseas Mortgage Company?

wagefreedom's picture

Why is this not on page 1 of the NYT? Along with a fat pipe Zero Hedge mainline, displacing the irrelevancies?


...the modern version of American capitalism: "the risk taker uses the leverage of their size and importance to so many people to transfer the risk they've created to the government and future generations, while keeping the rewards of all the risks that they've taken, negligent repair, you pick the thing - they keep the money, you keep the problem. This seems to have become the new version of American capitalism: extortion and bribery."

Noah Vail's picture

I see quite a few others engaging in extorion here as well. Take Florida for example which has demanded $2.5 billion escrow fund from BP when almost no oil has reached Florida. I live in the panhandle and was in Pensacola yesterday and can attest that the oil on their beach is insignificant. Normal Gulf winds and currents tend to keep oil away from Florida so that any major oil washing up on its beaches is unlikely. So where the hell does the governor of Florida come up with billion dollar demand? Politics maybe?

Ned Zeppelin's picture

Open your window late today and breathe in the fumes. The slick is 5 miles off your shore and will make landfall later today.

The Rock's picture

Btw, if you're so confident that everything is hunky-dory, why don't you go out for a nice little swim, hmm?

moneymutt's picture

Distributing booms, setting up and deploying networks of people/boats to lay boom, collect oil, getting trained leadership in place to direct people to properly place booms, getting onshore clean-up workforce ready, monitoring underwater oil plumes and oil slick locations...yeah these are things that should wait til the oil is on the beach, let it lap up on the beach a few weeks while you get your act together, that seems like a good idea...and all these preparations, they wouldn't cost a cash strapped state any cash flow, people will just give the state their boats, fuel, equipment, booms for free.

The well has been spewing oil for 50 days, and will go another 50 days easy, oil is 5 miles off your are such a marine scientist, you can say for sure, oil is not going to effect your cost at all, ever in the next 100 days?

So here are the alternatives, which one seems more rational:

1)Cash-strapped FL which has little of no emergency money a just hopes 100 days of the worse oil spill ever does not make it to shore, and if oil hits beach and then says, gee, this is going to be expensive, and asks for money from BP and takes weeks to get things in order as a natural resource that is key to their economy is trashed in meanwhile

2) Florida prepares for worst and asks party responsible for oil doom just offshore to pay now so they can have some chance of being ready when oil reaches extremely precious natural and economic resource. And just maybe everyone gets lucky, and not a lick of at least 100 days of oil touches the beaches of FL.

Yea, that option 2 is so stupid and its JUST like the TARP bank extortion, FL has done all the wrong here and made all the money over the years but FL is asking other to pay for their mess, others who never profited from their activity and are already downtrodden folks with little income prospects: BP.

For once, someone turns around our fascist corporate, crony govt that represent only special, connected big businesses, and not regular people, or the small business that could be wiped out by an extended oil spill, and for once someone tries to privatize losses to the responsible party, not just as punishment or just desserts, but to actually try to partly ameliorate the harm the private party has created, and you scream extortion.

Brilliant, if you represent the majority of us in the US, we are hopeless politically.

JW n FL's picture
by Noah Vail
on Fri, 06/11/2010 - 04:24


I see quite a few others engaging in extorion here as well. Take Florida for example which has demanded $2.5 billion escrow fund from BP when almost no oil has reached Florida. I live in the panhandle and was in Pensacola yesterday and can attest that the oil on their beach is insignificant. Normal Gulf winds and currents tend to keep oil away from Florida so that any major oil washing up on its beaches is unlikely. So where the hell does the governor of Florida come up with billion dollar demand? Politics maybe?


Noah Vail,
               To be clear... BP will pay and as far as where did Florida come up with the arbitrary number? here ya go stupid!

As the BP oil spill continues, the Gulf Coast’s fishermen, tourism industries, small businesses, and local governments are being threatened with serious economic costs.   While the total economic impact of the spill remains to be seen, it is clear that the damages will be significant, given that the tourism and fishing industries alone generate billions of dollars each year.


Here are just a few examples of the value of the industries to the Gulf Coast.


Tourism—Gulf Coast


1.      The value of the Gulf Coast’s tourism industry [EPA; Last Accessed 5.18.10]:

$20 billion




2.     The value of Florida’s tourism industry [Miami Herald; Last Accessed 5.18.10]:

$60 Billion


3.     The percentage reductions in hotel occupancy rates between Pensacola and Panama City [Wall Street Journal; Last Accessed 5.18.10]:

30 Percent


4.     The estimated percentage reductions in hotel occupancy rates during Memorial Day along the Florida panhandle[1] [Wall Street Journal; Last Accessed 5.18.10]:

70 Percent



5.      The amount of money spent by tourists on Alabama’s beaches in 2008 [Reuters; Last Accessed 5.18.08]

$2.3 Billion


6.     The number of workers supported by tourists on Alabama’s beaches in 2008 [Reuters; Last Accessed 5.18.08]



7.     Percentage of cancellations already being recorded on Dauphin Island where the first tar balls came ashore [Wall Street Journal; Last Accessed 5.18.08]:

50 Percent



8.     The amount of money domestic travelers spent in Louisiana in 2008 [Louisiana Office of Tourism; Last Accessed 5.18.10]:

$9.3 Billion


9.      The amount of tax revenue for generated by domestic travel in Louisiana for federal, state, and local governments in 2008 [Louisiana Office of Tourism; Last Accessed 5.18.10]:

$1.1 Billion


10.  Number of Louisiana’s 64 parishes that received over $100 million in travel expenditures in 2008 [Louisiana Office of Tourism; Last Accessed 5.18.10]:


Commercial Fishing—Louisiana


11.  The value of the commercial seafood industry in Louisiana [The Economist; Last Accessed 5.18.08]:

$2.4 Billion


12.  The percentage amount of seafood that Louisiana catches in the continental U.S. [Wall Street Journal; Last Accessed 5.18.08]:

40 Percent

Commercial Fishing—Gulf Coast


13. The size of the area in the Gulf of Mexico currently closed to fishing [Joint Information Center; Last Accessed 5.28.10]:

75,920 square miles


14.  The value of the commercial seafood harvest that was to begin on May 15th [Wall Street Journal; Last Accessed 5.18.10]:

$21 Billion


15.  The percentage amount of total U.S. seafood production coming from the Gulf Coast [Wall Street Journal; Last Accessed 5.18.10]:

20 Percent


Recreational Fishing—Louisiana


16. The value of the recreational fishing industry in Louisiana [The Economist; Last Accessed 5.18.08]:

$1 Billion

Double numbers with the new redfined spill estimates!


As for you Noah Vail I hope that someone takes your children from you and mails them back to you one knuckle at a time... not one finger, one fucking knuckle at a time. Fuck You!  

ToNYC's picture

Godfather I meets the Stockholm Syndrome. The new Road to Serfdom for the entitled ones. P.T. Barnum and W.C. Fiels are large and in charge.

JW n FL's picture


*****This seems to have become the new version of American capitalism: extortion and bribery."*****

Bullshit, Extortion would imply that someone is being compeled against thier will to provide monies... so that a secret can be kept...

We the People are sooooooooo Fucking! Stupid! that this is just completely inaccurate...

Bribery ='s Lobby... spot fucking on!


***** "

1 Introduction





The debate about the impact of market structure, and thus competition policy on innovation is still vigorous. The classic opposition is between Schumpeter (1942), Arrow (1962), Dasgupta and Stiglitz (1980),


etc. Schumpeter (1942) argues that a rm in a monopoly position has an incentive to innovate to prevent entry; a monopoly position may also ensure long-term objectives and can prompt making some risky investments in R&D. Some empirical evidence seems to support the Schumpeterian view. For example, recently, Blundell et al. (1999) have found a positive correlation between individual ex ante market share and innovation.However, following Arrow (1962), under perfect ex post appropriation, the pro t margins may be larger in an ex ante competitive industry than under monopoly. Aghion et al. (2002, 2005) attempt to reconcile the two approaches in a model that captures both mechanisms. Their model exhibits an inverted U-shape relationship between innovation and competition. In this model, competition may increase the innovation pro t margin for rms close to the technological frontier (since they escape competition) but strong competition could also reduce incentives to innovate for laggards (disincentive e ect). The goal of our paper is to extend this combined approach by studying the magnitude of the impact of competition on innovation behavior. We propose a model that takes into account rm size and/or the size of the innovation in the sector. Intuitively, if innovations are large-scale and costly in the rm's sector, competitive shocks have to be large to change its innovation choices. Therefore, the inverted U-shape is atter and competition policy is therefore less relevant for innovation when innovations are costly (or rm size is small). Empirical investigations using a unique panel dataset from the Banque de France con rm a clear inverted U-shaped relationship for the largest French rms. This result is consistent with Aghion et al. (2005)'s ndings on UK listed rms. But the curve attens when the relative cost of R&D increases: when the sectoral cost of innovation relative to the rm's size is large, changes in the competitive position of the rm does not seem robustly associated with changes in R&D intensity. For large costs, the relationship even vanishes: competition does not seem to impact rm R&D behavior. These results are also related to the literature on innovation decisions that stresses the role of rm size (e.g. Cohen and Klepper, 1996). It may be easier to nance R&D in large rms because they may have a reputation and enjoy deeper relations with external investors or bank lenders. They may also gain through a \too big to fail" mechanism. Finally, because of sunk costs associated with innovation investment, large rms have more incentive to engage in innovative activities. Empirical evidence seems to support this view. For example, Savignac (2006) shows that French rms with plans to innovate face nancial constraints that reduce the likelihood of their embarking on such projects, and that these constraints decrease with rm size. The paper is organized as follows. Section 2 is devoted to detail the model and the theoretical predictions. Econometric strategies and data are presented in section 3, that also provides the key empirical findings. Some perspectives are given in a last section.

" *****


Legislating for growth or maintaining market share, is still less expensive than any form of R&D... thusly our Corporate Culture is not one of innovation...

It is cheaper to bribe / lobby the whores inside the beltway..


It is too innovate, come up with new products to be manufactured... here at home... General Electric bringing good ideas to life? with thier 0% Fed window? Fed / Treasury backed Bonds? G.E. the great innovator? who grows market share thru legislation?

Not only do you have to be right, you have to be able to convince everyone else who will be losing market share... that its in thier best interests, too lose money.

There is no free market, it is long dead.


Careless Whisper's picture

Who is monitoring the air quality from the oil spill? Does the oil contain toxic elements that are getting in to the air (mercury, arsenic, venadium)? How many clean-up workers have been treated for illnesses?

BP and U.S. Coast Guard officials have said dehydration, heat, food poisoning or other unrelated factors may have caused the workers' symptoms.

Oh really.




mcguire's picture

please... the goverment would never lie about the toxicity of a clean up environment that would endanger health of non-bildebergers...


oh wait... there was that one time...

plongka10's picture

I thought you were linking to a story about Union Carbide in Bhopal.

kingwallop's picture


EPA leaked

Gulf test reveals Volatile  organic compounds

Hydrogen sulfide

Safe Levels Allowed

5 to 10 parts per billion


1200 parts per billion


Safe Levels Allowed

0 to 4 parts per billion


3000 parts per billion

Methylene chloride

Safe Levels Allowed

61 parts per billion


3400 parts per billion




Cactus Rocky's picture

BP doesn't care whom they hurt.  They need to slow down on the paying of claims in order to give the trial lawyers a chance to horn in on their 40%. 

Spitzer's picture

The government and the enviro freaks should share some clean up costs too. If it was not for them, BP would have been in 200 feet of water.


Observer's picture

another very good point

ZackAttack's picture

A faulty cement job and shoddy QA could have occurred in 200' feet of water. Yes, the cleanup might be easier, but the negligence is independent of the depth of the water.

Also, I wonder if it's

a) more, or

b) less

likely that the rig would've collapsed directly on top of the wellhead in 200' of water, so that the infrastructure would have to be cut away first before any of these palliative measures could've been attempted.


Village Idiot's picture

@ spitzer,

I have heard you mention that the our government is complicit by way of some pressure put on BP to "drill deeper". I don't doubt you, but curious as to where you are getting this info - I haven't seen it.  Thanks.

Spitzer's picture

 I heard through the grape vine that they could not get permits to drill the formation in shallower water because the enviro's didn't want to see the rigs there. Neither did people living close to the shore.

ZackAttack's picture

Yes, because there are billion barrel wells everywhere, you know.

I think we should look for them under suburban swimming pools where the cleanup would be ever so much cheaper.


Observer's picture

neither do big oil in the US or big Chemicals. think Union Carbide in Bhopal, India for one. or Exxon Valdez the effects still felt after all these years in those waters. 'Holier than thou' doesn't cut it

Jeff Lebowski's picture

From a simple calculation and based upon what BP is admittedly collecting:

Total fines could be:

51 days x 28,000bpd x $4,300/barrel = $6,140,400,000

Add in the claims, include the interest bearing accounts of $2.5b for Florida..  

Doable, but the person who stated that there isn't enough money in the world to clean up the GOM, had it exactly right.

Ned Zeppelin's picture

The endgame is that the claims will grow to monstrous proportions, as will the spill itself, and BP will go under, its assets stripped out and sold to the highest bidder - same fate for the owners of the rig, etc. So invest accordingly.  This is where this is headed.  They've been lying from day 1 and the guesstimates of the extent of the spill are now approaching 50% of the truth. The GOM is history for a decade - put a price tag on that.

RobotTrader's picture

If it were Petrochina instead of BP, the CEO would tell Obama to take a hike...


AnAnonymous's picture

If it was Petrochina?

Nukes would be on way for  Beijing.

I cant even imagine the hysteria that would rapture the US. Demonstrations,  round the clock TV shows bashing China, the Internet saturated with hate messages.

BP has it easy compared to what China would endure.

Mercury's picture

BP will be Petrochina. BP's US-based operations are done for as, fairly or unfairly, BP will be bled dry by lawsuits, clean-up costs and political intolerance for their ever making another penny of profit in the US. However...BP throws off a lot of cash around the world and they are good at what they do.

So BP sells itself to the Chinese who then have a shiny new integrated giant just as oil shoots past $100. The Obama administration, having fucked this thing up at every single turn by this point will leave the US with crippling new regulations, a massive environmental disaster, ruined equity and debt holders and little recourse because China will tell us to go fuck ourselves if we try and lay claim to any of BP's (legacy) assets not within our physical grasp.  Because Obama long a go made it clear that there is nothing "special" about the US/UK relationship, the Brits will facilitate the BP/China deal while running interference against the US in an effort to salvage some value for their own domestic share and debt holders.

FreddyInBangkok's picture

you mean the Pilgrim Soc & Kts of M handing a prize asset over to the Chins. don't think so. &, Lizzy's emissaries no doubt promised Mandingo a knighthood if he's a good boy, which requires tacit genuflexing on his part for the remainder of his tenure.


Common_Cents22's picture

But dear leader obama will rescue us with wind and solar !

anony's picture

if it were Petro, the CEO would be dead by now. 

Sudden Debt's picture

They would just call google to delete all the content and forget all about it.

Observer's picture

indeed..or else 'you buy your own debt'

Rider's picture

After that he would face the firing squad.

I do think Chinise know how to motivate people to avoid corruption.

We might need A COUPLE OF CORPORATE CAPITAL PENALTIES and we assure no double dip, no TBTF etc. in one easy step , Should they start with the squid??


mcguire's picture

if it makes toxic rain, the game is over... it rains on the rich and the poor alike.  it will be humans vs. evil at that point. 

Pondmaster's picture

Toxicity -

The heavy metals mentioned aforehand do not evaporate into the air . Only the aromatics of the crude spill . I recently saw  , can't pinpoint , the "evaporation rate of different hydrocarbons on water . Gasoline was the fastest . That said , my main concern is not what evaporates from the oil spew , but what does not evaporate . H20 !! Water covered with oil does not evaporate , it does not enter the atmosphere . Will a large enough area covered in oil effect rainfall amounts? Maybe not , maybe so . Also in point , crude oil,on water raises water temps just beneath the oil ( it also "cooks" the birds thus encapsulated ) What could effects of altered evaporation rates , and higher water temps be. WHERE IS THE CLIMATE CHANGE CROWD ON THIS ISSUE?????? Silent of course , its not part of their agenda . In the end which is far out from where we are today , BP will never be able to shoulder the damage done to us all . No money will . No price has been placed on the environment itself , just economic losses . Sad       

saulysw's picture

My thoughts on reading the article were along the lines of -- well, who is going to pay all those dead fish, dolphins, pelicans etc etc? It is very sad if the only thing of concern is renumeration of humans who have had their plunder of the environment taken away.

mcguire's picture

symptathy with the eugenicists will not get you a spot in the bunkers...

Professordoomfinger's picture

Didn't the double top of 2007 - 2008 get anybody's attention?


Caviar Emptor's picture

BP will let the oil spill on, even if it takes 2 years to fix, for these reasons:

-They're sitting pretty, on a gusher of a productive well that could produce big volume for over a decade. They know it. It's a black gold mine. They'll never relinquish or destroy it even though Plug and Abandon (P&A) is a standard practice in the oil industry without the need for nuclear material.

-Total liabilities for a mega spill are negligeable. Total costs for the Exxon Valdez spill were $3 billion over 20 years, including all civil suits. They kept big cases tied up for 20 years until the Supreme Court reduced punitive damages in 2007 to under $100 million. They fully expect that taxpayers will directly and indirectly foot the bill for damages. 

-Britain will defend BP to the death to protect millions of pension funds tied to the stock.

-They have no affirmative duty to the environment, citizens, states, or US government. 

Escapeclaws's picture


The fact that Obama's on the case assures that nothing will be done.