Thank You… 20 Billion Times

Yesterday Barack Obama took BP executives to the woodshed and emerged with a fistful of cash for the victims.  Most of the reactions I hear indicate that almost everyone is pleased, except for the Republicans.

Four days of intense negotiations between the White House and BP lawyers allowed President Obama to announce Wednesday that the oil giant would create a $20 billion fund to pay damage claims to thousands of fishermen and others along the Gulf Coast.

The fund will be administered by Kenneth R. Feinberg, the lawyer and mediator who ran the fund for victims of the Sept. 11 attacks and has emerged as a troubleshooter on issues like executive compensation and resolving claims for asbestos and Agent Orange victims.

While acknowledging that oil is likely to continue spewing from the well for perhaps months to come, Mr. Obama was able to throw something of a lifeline to desperate coastal residents worried about meeting payrolls, mortgages and shrimp boat payments… [emphasis added]

Inserted from <NY Times>

Much of the criticism I have hears about Obama’s speech has been centered on its apparent lack of outrage and indignation.  Although I share those feelings, I did not think it would serve a useful purpose.  I thought that if BP was pushed too hard, they would not settle.  The following article shows how sensitive the situation is.

How many companies could take a $20 billion body blow and still be left standing?

Not many. The amount of money BP said it would plunk into an escrow fund for oil-spill claims is enough to cover the entire NASA budget for a year. It’s enough to buy all the shares of the Kellogg Co. And it’s larger than the annual economic output of 90 countries.

But BP is an unusual company. It made profits of $5.6 billion in the first quarter of this year and $14 billion in 2009. It produces about 2.5 million barrels a day of crude oil from Russia to Angola, from Britain’s North Sea to Alaska’s North Slope. Until Wednesday, BP also had been planning to pay out $10.5 billion in dividends this year, which would still have left it with $5 billion to $10 billion in spare cash.

It could raise the money for the escrow fund this year without borrowing another dime.

That arsenal of cash and crude hasn’t been enough to placate the Obama administration, however, as the company wades through the largest environmental disaster in U.S. history. And BP has struggled to convince markets that it can meet its obligations to both investors and victims of the oil spill in the Gulf of Mexico. In eight weeks, BP stock has fallen to about half its earlier value. On Tuesday, Fitch Ratings slashed the firm’s credit rating to BBB, two rungs above junk. And early on Wednesday morning, investors in credit default swaps — an insurance-like financial instrument — were pricing an almost 40 percent chance the oil giant would default on its debts within five years.

So although the deal struck at the White House on Wednesday was designed in part to reassure Gulf Coast residents that BP would put aside enough money for their claims, it was also designed to give shareholders a sense that the financial damage was manageable and could, over time, be contained along with the oil spill.

That’s why one thing BP asked in exchange for the big escrow fund was a signal from President Obama that he was not trying to run the firm out of business. “BP is a strong and viable company,” the president said after his meeting with BP’s chairman and top executives, “and it is in all of our interests that it remain so.”

That is hard to accept for many Americans who want to punish BP. But anything else might be counterproductive. So far, the company, drawing on its worldwide operations, has paid for everything from National Guard troops to air quality testing by the Environmental Protection Agency, from $5,000 checks for shrimpers to the $100 million or so for each relief well.

“This agreement underscores that as long as we need oil, Big Petroleum is better than Bankrupt Petroleum,” Lincoln Mayer, a lawyer specializing in energy and antitrust at McDermott Will & Emery, said in an e-mail. “Few companies could afford a $20 billion mistake. BP is one of them, and that’s a good thing.”

Investment analysts appeared reassured after the White House meeting. “It takes the political heat off the company and it steadies the ship in rough waters,” said Fadel Gheit, an oil analyst at Oppenheimer. “BP is stabilizing its financial position so it can handle cleanup costs and damages.” BP stock rose 1.4 percent on Wednesday, closing at $31.85 a share. And the cost of BP credit default swaps dipped slightly, indicating a bit less anxiety about corporate default… [emphasis added]

Inserted from <Washington Post>

BP was teetering.  Righteous indignation and outrage from Obama m ay well have fueled fears about BP’s stability and taken the company down.

In addition, Obama got BP to delay paying dividends.  He also revealed his energy strategy.  Keith Olbermann and Chris Hayes covered the situation well.

Visit msnbc.com for breaking news, world news, and news about the economy

Yesterday, I criticized Obama for not stating that he has a fully developed energy plan.  I take it back.  I want to watch this and see how it develops.

Then there are the Republicans.  You’d think they would be overjoyed at red states getting all that money, but nope.  Here are just a couple GOP reactions out of many:

Even as President Obama and his administration were working out the final details of a $20 billion escrow fund for compensating victims of BP’s oil spill, Republicans were crying foul, saying that the escrow fund was unfair and and overly harsh.

Leading off the crazy was Michele Bachmann, who called the escrow fund a “redistribution of wealth fund.” She told Dave Weigel that she worried that BP was being “fleeced” by the Obama administration.

Not to be outdone, Missisippi Governor Haley Barbour — a potential 2012 contender — said the escrow fund was overly harsh, and could cause BP so much economic pain that it wouldn’t be able to offer victims any compensation whatsoever… [emphasis added]

Inserted from <Daily Kos>

The GOP is dismayed, because this is such a huge victory for Obama.  The Senate Democrats only had the courage to try to lift the damages cap from $75 million to $10 billion.  Of course the GOP filibustered that to protect BP.  Obama doubled it, and it’s not even a cap.  It’s a down payment.

This is pure speculation, but I think I know what went down in that meeting. I think Obama told BP that the success or failure of everything he wants to do for the American people is riding on a successful outcome to this crisis.  I think BP hedged.  I think Obama reminded BP that he can take them down and asked them if they want to survive together or go down together.  How else could he have convinced BP to pay?

How many Presidents in US history has taken a major multinational corporation on and walked away the winner?  Who else?  Thank you, Mr. President.