Friday, June 18, 2010

From What does the BP "escrow" deal really mean? by gimleteye

It is extraordinary -- but perhaps not unexpected-- how little analysis the mainstream media has done on the $20 billion deal hammered out at the White House with BP for an 'escrow account' to compensate victims of the worst environmental disaster in US history. The website, Seize BP, has done a good job looking at details in the deal that point to further questions. Click 'read more' for the full text from its website.

As we enter the second month of this catastrophe, some readers are tiring of my persistent focus on this issue. The fatigue is understandable. I feel it, myself. But I am compelled back to the subject and reminded why, by the response of a local county commissioner in Miami-Dade, Katy Sorenson, to the question: "Do you think the economic crisis has changed anything at the county commission?" Her answer, "No," is true and tragic. I am afraid the same may be true of the Gulf Oil disaster: that people will recoil, then accept the massive damage to the economy and to families and the environment. This sense of helpless and failure to act seems so antithetical to democracy. Americans will learn-- as Nigerians have in the oil fouled Delta-- to suck up to a badly degraded and damaging quality of life based on the need for oil. We did it with the costs of suburbia. With the costs of water pollution. Why not, oil ringing the State of Florida like a filthy bathtub?

Did you join Sierra Club, or, Friends of the Everglades today? If not, do.

What does the BP "escrow"
deal really mean?

People all around the country have put so much pressure on the Obama administration that it had to “do something” to look like it was standing up to BP. The announcement today of a so-called $20 billion escrow fund from BP would never have happened without mass pressure. But does this fund truly respond to the needs of the people in the Gulf Coast states?

Too much is at stake for people to let down their guard and accept the “feel good” sound-bite version of what took place today in the meeting between President Obama and BP’s executives.

The White House and BP are creating a mythology, or "spin," on what the tentative agreement signifies.

It is noteworthy that BP's executives are very happy with the new agreement. Their necessary goal as a corporation is to maximize profits, and not to pay damages to all of those who have been harmed. As the Washington Post reported after the meetings, "Behind the scenes, the company had signaled what it expected from Wednesday's meeting—and the company appears to have gotten exactly what it wanted."

It is quite clear to us, even though much more will be revealed in the coming days and weeks, that we have to accelerate the movement for justice. This agreement is not only inadequate but attempts to shield BP from paying all the damages and compensation for lost work, ruined small businesses, and a devastated ecosystem.

At first glance, one would believe, based on the headlines that the Obama Administration compelled BP to set aside $20 billion dollars in an escrow account to meet the needs of people and communities harmed by BP's criminal negligence.

But this is actually a great deal for BP.

The facts on the "escrow" account

The "escrow account" in 2010 is not $20 billion dollars. BP will put in $3 billion dollars in the third quarter of 2010 (ending September 30) and another $2 billion in the fourth quarter (ending December 31). Thereafter, it will have to make installments of $1.25 billion each quarter for the next three years.

This means that the necessary money will not be available to pay the tens of billions in losses that are real and immediate. It also means that people and businesses will have to get in line.

The real number for the escrow account in 2010 is $5 billion—six months from now at the earliest. To put this in perspective, BP has been bringing in between $26 billion and $36 billion annually in profits on revenue of $250 billion, and pays out more than $10 billion in dividends yearly.

According to a report in Forbes, BP could absorb $35 billion in spill costs before it would have a "material impact" on its operations. But instead, it will be allowed a paltry $5 billion a year, in an installment plan over four years.

Another measure of perspective can be had by comparison of this $5 billion per year voluntary set-aside to the accumulated potential fines and penalties under the Clean Water Act. BP can be fined $4,300 per barrel of oil spilled as a consequence of gross negligence. With the recent acknowledgment that the spill volume is 60,000 barrels per day, that is a potential penalty of over $250 million per day. Put another way, every 60 days accumulates a potential $15 billion fine under the Act. The voluntary arrangement to set aside $5 billion per year is meager in comparison.

This, of course, reflects Obama’s unwillingness to exercise legal authority against BP. Department of Justice lawyers could be initiating prosecutions for the accumulated fines, but aside from the announcement of potential investigations, this has not occurred.

Obama denies that his deal with BP will function as a cap on its liability, but this remains to be determined. The deal appears to functionally provide a shield for BP. As one investment advisor told the Wall Street Journal, the agreement puts "an end to the financial bleeding," and allows investors to assess what BP's total liabilities might be. So while President Obama stresses that the plan is not a cap on liability, it certainly appears as one. The installment terms of the payments themselves limit the amounts that will be made available while people are seeking claims.

Mr. Feinberg to the rescue—again

President Obama announced that the fund will be administered by Kenneth Feinberg, a Washington lawyer who made $5.7 million in his law practice in 2008. Mr. Feinberg has played a particular role in Washington at the time of virtual uprising against the banks and bankers' bonuses. He was appointed to be the “pay czar” by Obama reviewing and approving many of the obscene bonuses doled out to AIG and other executives after they were bailed out with hundreds of billions of dollars of taxpayers’ money. As Reuters wrote today, "He has been hailed for soothing the egos of Wall Street executives clutching on to big paychecks, while still looking tough to a general public shocked by massive payouts to firms on a government lifeline."

There is very little other information about how claims will be processed. There will have to be determinations made as to what, in the parlance of both BP and President Obama, is a "legitimate" claim. While Obama stated that anyone can file a claim, that doesn’t mean that the claim will be accepted or paid. Nor does it appear that the decision-making process will include any of the affected Gulf coast residents or their representatives from the fishers, shrimpers, crabbers, unions, small business people and workers in the tourism and recreation industry, local elected officials, clergy, and independent scientists and environmentalists.

Details must be forthcoming about claims payments and standards. Can we expect tens of thousands of people to receive checks by the end of the month? One thing is clear: The limited level of the fund necessarily means that claims cannot be paid equivalent to the damages incurred right now.

The creation of the so-called escrow fund was the result of a nationwide mass movement. Now is the time to step up our organizing to make sure that we have the kind of escrow fund that can really meet the needs of the people and repair the vast environmental damage caused by BP.


Anonymous said...

I wonder who is going to be in charge of administrating these funds and claims. Its gonna be a nasty free for all. Millions to be thrown and tossed around.

swampthing said...

As the Oiliarch Thickens.

If you have a claim... get in the back of the line.

Kenny Feinberg, Mr 911 whitewash, has a knack for pacifying outrage. Tasked with making sure gulf oil victims do not have a day in court, he will cover the tracks of the wealthy culprits.

I would be disappointed in obama but his being mired in the blistering blow-back from the bush/cheney years cant be easy.

TX judge Lynn Hughes, is that pizza oil on his face?