Obama Kicks Bad Dog BP in Power Grab: Caroline Baum (Update1)
Commentary by Caroline Baum
June 16 (Bloomberg) -- Reports of the death of capitalism may have been greatly exaggerated following the panic and crisis of 2008 and the government’s assumption of a bigger role in the economy. Now I’m not so sure.
It’s one thing when the government takes an ownership stake in a company, as it did with the banks. Then it has the authority, even a duty to taxpayers, to be involved in determining how much the company pays out in the form of dividends to shareholders and how generously it compensates its executives.
When the government has no ownership stake, it has no business interfering in the inner workings of a company, other than ensuring compliance with the regulations it has put in place.
President Barack Obama wants to change all that. He wants BP Plc to withhold its dividend in order to pay for the environmental and economic damage from the Gulf oil spill. Estimates of the cost of the cleanup and legal liabilities are as high as $40 billion. BP says it has the resources to do both. It may not have the stomach to pay a $2.6 billion second-quarter dividend on June 21 in the face of public outrage.
Obama wants BP to pay for the lost wages of oil industry workers affected by the moratorium on deepwater drilling -- a moratorium imposed by the president two months after he opened up new areas of the coastline to oil and natural gas drilling. (That way, furloughed workers can be counted in the metric, “jobs created or saved!”)
Regulatory Failure
Do we in the U.S. really want the government to tell publicly owned companies what they can and can’t do?
I know what some of you are thinking: When business screws up, government has to step in to protect the little guy.
BP screwed up big time. Based on documents released by the House of Representatives’ Energy and Commerce Committee, it sounds as if the company cut corners to save time and money at the expense of safety. It didn’t have a backup plan in place to stanch the oil flow if its blowout preventer failed.
Regulators -- in this case, the Minerals Management Service, a bureau of the Interior Department -- screwed up as well, issuing BP a drilling permit for its Deepwater Horizon project without requiring the company to submit a blowout scenario. In addition to MMS’s obvious conflicts of interest in regulating an industry it collects revenue from for issuing leases, some of its employees were found to be whooping it up with industry employees.
No Legal Precedent
On what basis does Obama claim that BP is responsible for lost wages?
“I don’t think there is any legal precedent that simply because an employee is put out of work as a result of a government mandate he is entitled to any compensation,” says Andy Lang, who practiced labor law at McGlinchey Stafford Pllc, based in New Orleans, before retiring. “Nothing occurs to me in terms of a theory under which that would work. He’s trying to use the bully pulpit.”
Exactly. It’s a scare tactic designed to score political points with some of the faithful who are losing faith in Obama.
And it’s a tactic the president employs often. With health care, financial reform and now the oil spill, Obama resorts to a who’s-the-baddest-dog strategy, making himself look good by putting someone else down.
One can almost hear the voice of White House Chief of Staff Rahm Emanuel telling the president not to let another crisis go to waste. True to form, Obama used his first address from the Oval Office last night to promote legislation on clean energy in the same way he seized on the financial crisis as an excuse for regulatory reform.
Wolves Baying
It would be one thing if the reforms created incentives for regulators to do a better job rather than pile on more rules for the regulated companies to circumvent. Some changes in the wake of the banking crisis make more work than sense.
For example, federal regulators, primarily pay czar Ken Feinberg and the Federal Reserve, now review the compensation policies of major banks to make sure incentives don’t encourage short-term risk-taking.
What does the Fed know about executive compensation?
“It knows that the wolves are at the door,” says Michael Aronstein, president of Marketfield Capital in New York.
Aronstein thinks most of what’s been crammed into financial regulatory reform could be better achieved by proper incentives.
“I’ve never heard a convincing argument why personal liability isn’t the best risk mitigation technique,” he says.
The board and management of a bank would be held accountable for the risks they take. (Now there’s a fresh idea in this era of bailouts!) In the case of the biggest banks, liability would extend to perhaps the hundred highest paid employees, all of whom would provide a layer of capital, Aronstein says.
Slippery Slope
Nothing concentrates the mind like a hanging, and nothing constrains risk-taking like the prospect of a personal financial loss. Yet this kind of a market-based check-and-balance never gets a hearing amid thousands of pages of rules Congress writes.
It may be fashionable to claim that free markets don’t work and bigger government is the answer. It’s not a big leap from there to the notion that if a little more government is good, a lot more is better. That’s a slippery slope the U.S. doesn’t want to go down, even in the face of a huge oil spill.
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