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Corporate Welfare and the Case for Taxes and Regulation

10:23 am in Economy, Environment, Government, Politics by dakine01

Most everyone knows the most common use of welfare as helping those in danger of being left behind by society. Temporary Assistance for Needy Families (TANF), Supplemental Nutrition Assistance Program (SNAP although often still referred to as Food Stamps, and Medicaid are the most well known programs available to people. And no, Social Security and Medicare are not welfare programs.

No Regulations - Do as you please!

No Regulations - Do as you please!

But just as there are welfare programs for individuals and families, there are also welfare programs for corporations and the rich and powerful. These are just not given names to make them easily identifiable as welfare programs yet the end result is governments at all levels wind up subsidizing for profit industries at the expense of the taxpayer. Privatizing the profits, socializing the losses in other words.

Let me offer a few examples. WalMart is one of the easiest examples. They are a profitable business yet far too frequently, WalMart employees are forced to use public assistance, i.e., the pretty much textbook definition of the working poor (see here, here, here, here, here, and here). If you check der Google for “WalMart employees public assistance” there are over 900K hits in .34 seconds.

Privatizing the profits, socializing the losses.

Next up are oil and gas companies. Just for last year (2012) the Big Five oil companies (ExxonMobil, Shell, Chevron, BP, and ConocoPhillips) had combined profits of $117B (high of $45B for Exxon down to ‘only’ $8B for ConocoPhillips). These are just the biggest oil companies and does not cover the Koch Brothers Amerada Hess, T Boone Pickens, and many other “smaller” oil companies (smaller being a relative term). While the amount of subsidies varies depending on how they are defined, contrary to Forbes magazine’s contention, they do exist. As even an earlier Forbes article concedes (although they paint it as “everybody loves them.”) Christian Science Monitor places the subsidies at $41B a couple of years ago. The Atlantic in March discussed over $38B in Big Oil and gas subsidies identified by the Obama administration for deletion over the next 10 years. This chart shows the annual subsidies for Oil and gas at $10B to $52B per year. You will notice that all of these guesstimates on the amount of annual subsidies are well below the annual profits.

Just these past few weeks we have seen a few more examples of privatizing the profits and socializing the losses. Exxon’s oil spill/pipeline break in Mayflower, AR. Due to a loophole in the law, Exxon will not have to pay into a federal cleanup fund after this disaster. The West, TX fertilizer plant explosion:

“This explosion, I think, surprised a lot of people,” said Senator John Cornyn. “It is no surprise that ammonium nitrate is explosive under the right conditions.”

No one could have anticipated – unless they did.

Tax breaks. Lack of regulations. No inspections. Ka-boom!

I wish I had the answers or the magic wand but I do not have the magic wand and elected officials at all levels do not have the will to find and implement the answers. It might hurt the (un)free market and cost a few cents of profit.

Privatize the profits. Socialize the losses. Avoid the taxes and regulations and let the tax payer pick up the pieces. John Galt would be so very proud.

And because I can:

Cross posted from Just A Small Town Country Boy by Richard Taylor
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Banker Pay Is Pretty Good – The Price of Destroying the Economy

11:49 am in Economy, Financial Crisis, Jobs, Unemployment by dakine01

A few months ago, I offered my services — only half facetiously — to British Petroleum as CEO after I had read about and watched bits of Tony Hayward’s testimony before Congress. He’d acted like the Sergeant Schultz character (I know nothing, nothing!) on the old sitcom Hogan’s Heroes; I figured I could do at least as good a job as Hayward for a lot less money. Win-win all the way around for everyone!

The Sergeant Schultz defense seems to be fairly common among CEOs and upper management for many companies, even though they are paid to be aware of what is going on. I would imagine that there are many of us among the millions of long term un and underemployed who could do the jobs of CEOs and so-called Masters of the Universe and be not only more honest in our dealings with others but also more empathetic for those who are struggling.

Instead, we get to see Goldman Sachs CEO Lloyd Blankfein’s salary and other compensation jump again in 2010:

The firm’s board granted restricted stock valued at $12.6 million to Mr. Blankfein and other senior executives, including Gary D. Cohn, the firm’s president. The board also approved a new annual base salary of $2 million for its chief executive, up from $600,000. Mr. Cohn and others will see their base salaries increase to $1.85 million, according to the filing on Friday.

With his previous salary of $600,000, Mr. Blankfein’s 2010 compensation comes to $13.2 million. Senior executives often receive part of their compensation in cash, but Goldman did not release details on this component of Mr. Blankfein’s compensation.

Surprisingly, this does not sit well with all corners of the business world. This is from a Fortune Mag (via CNN blog):

How might you compensate management for a year in which profits plunged, you spent $550 million of shareholder money to settle a fraud investigation and your stock ended up more or less exactly where it started (see chart, right)?

You might be tempted to nix raises or withhold bonuses to send a responsible message about linking pay to performance. But if so, you wouldn’t be Goldman Sachs (GS).

It just had the year described above – and responded by tripling everyone’s base salary while boosting bonuses by 40%. Is this a great country or what?

Turns out, Bank of America is doing similar and is also not winning fans for doing so (via Wall Street Journal):

Bank of America Corp. intends to give some investment bankers a greater share of their bonuses in cash, the latest Wall Street compensation move roiling banking chieftains as they meet in Davos, Switzerland.

Last year the highest-paid bankers at the nation’s largest bank by assets received as little as 5% of their payout in cash. Now bankers and traders making more than $5 million are getting as much as 30% of their 2010 compensation in cash and at least 70% in deferred stock, according to people familiar with the situation. Some could see a stock award of as much as 80% and 20% in cash.

Of course, the bankers love to send mixed messages. Read the rest of this entry →

Can CEO Salaries be Made Rational Once Again?

10:07 am in Uncategorized by dakine01

Today’s (Tuesday, July 27) NY Times has a couple of articles on CEO Salaries. The first, which appeared in the print edition (and online last night), discusses the push from some lawmakers at lowering the salaries for CEO’s of non-profit organizations:

State and federal officials are starting to take their knives to the pay of leaders of nonprofit groups they do business with to help share the pain of tighter budgets.

A provision in New Jersey’s recently passed budget, for example, includes a limit on what nonprofit groups can pay their chief executives if they are providing social services under state contracts. The cap, based on a formula that also applies to for-profits providing such services on behalf of the state, is part of a broader effort by Gov. Chris Christie to rein in salaries on state workers.

In New Hampshire, Attorney General Michael A. Delaney is investigating compensation among nonprofit hospital executives. And Vermont legislators are trying various ways of curbing salaries paid by nonprofit groups that have contracts with the state.

On Capitol Hill, four senators this spring refused to approve a $425 million package of federal grants for the Boys & Girls Clubs of America after staff members looked at the organization’s tax forms as part of a routine vetting process and were surprised to learn that the organization paid its chief executive almost $1 million in 2008 — $510,774 in salary and bonus and $477,817 in retirement and other benefits.

Watertiger discussed this on last night’s Late Night post at Firedoglake and her close pretty much says it all:

For the record, I’m not condoning these exorbitant salaries on either side of the bottom line. Being a hippie socialist type, I think that CEOs should be paid in direct proportion to their lowest paid employees, and those employees should be guaranteed a living wage. All I’m asking for is a little consistency in the approach, please. You can hold the foie gras.

This leads to the second article from the Times’ DealBook blog posted yesterday afternoon on how corporate boards use compensation for peers to inflate executive pay for all:

Corporate boards appear to routinely use compensation peer groups to artificially inflate pay for their chief executives, helping to contribute to the cascading increases in executive compensation over the last several years, according to an academic study on corporate governance.

While the rate of pay increases was nearly 11 percent in one recent year, the study highlights one of the various ways that corporate boards go about determining huge compensation packages for executives.

Executive pay has increased substantially over the last few years. For example, in 1965 chief executives at major American companies earned 24 times more than a typical worker, while in 2007 they made 275 times more, according to the Economic Policy Institute. This sharp increase in income for chief executives, coming as wages for ordinary Americans remained relatively flat, has become one of the more perplexing questions in social science and business. Are chief executives that much more valuable now than they were 45 years ago?

The answer to that question at the end of the quoted piece is "No, chief executives are not that much more valuable now than they were then. The salary inflation is an example of an attribute formally known as Illusory superiority and often called the Lake Wobegone Effect:

The characterization of the fictional location, where "all the women are strong, all the men are good looking, and all the children are above average," has been used to describe a real and pervasive human tendency to overestimate one’s achievements and capabilities in relation to others. The Lake Wobegon effect, where all or nearly all of a group claim to be above average, has been observed among drivers, CEOs, stock market analysts, college students, parents, and state education officials, among others.

The result of this inflation is someone like Carly Fiorina who nearly destroyed Hewlett-Packard yet walked away with millions of dollars or Tony Hayward, who receives millions of dollars/pounds in compensation as the CEO of BP yet is allowed to use the Sgt Schultz defense when asked what went wrong to cause the Gulf Gusher. And it’s not just Fiorina and Hayward. Think of the responses from the CEOs of AIG and Goldman Sachs when they were asked what had gone wrong in the financial markets. The Sgt Schultz defense was used there as well.

If CEOs know nothing about what is happening on their watch as CEO, why are they being paid millions of dollars in stock and salary? Why are they being paid such a large multiple more than the average worker if they have no clue what is happening?

Now for the record, I have no problems with moneys earned and stock options awarded to a Steve Jobs, Larry Ellison, or Bill Gates. They took an idea and built a company from nothing. It’s the hired guns like Hayward and Fiorina or other CEOs at publicly traded firms who have done nothing in building a business yet expect to receive millions, even when the moves they make blow-up long standing businesses, destroy jobs, and communities, and shareholder value. Sgt Schultz is a paragon of knowledge and bravery in comparison.

And because I can:

A Modest Proposal for BP Shareholders

11:53 am in Uncategorized by dakine01

I am here today to offer a modest proposal to the shareholders of British Petroleum.

I’m sure you are aware of the "performance" yesterday of your current Executive Director/CEO Tony Hayward, as he testified before Congress on BP’s actions before and since the start of the Oil Gusher in the Gulf of Mexico now 59 days ago.

For the record, I did not watch his performance directly as I tend to avoid watching things that are pretty much guaranteed to make me want to throw a shoe through the telly. I did, however, follow along with the live-blogging at (here, here, and here.)

That being said, after following the live-blogging and reading news stories today such as this from the New York Times, I would like to present myself as a candidate for your new ED/CEO.

My qualifications are very similar in many ways to those of Mr Hayward. Like Mr Hayward,

“I had no prior knowledge of the drilling of this well, none whatsoever,” he said.

Like Mr Hayward,

“I’m not stonewalling,” said Mr. Hayward, the 53-year-old Englishman. “I simply wasn’t involved in the decision-making.”

Like Mr Hayward, I can claim to have no knowledge of any of the actions taken by BP leading up to this disaster. However, unlike Mr Hayward, I can make these claims without appearing to be a clueless buffoon.

Unlike Mr Hayward, I can actually feel empathy and show it for those folks on the Gulf Coast who are seeing the destruction of their life-styles and livelihoods. I can understand the need to capture and present actual problems with the use of the dispersants and the affects on workers of breathing toxic air. And I can do so without whining about "wanting my life back."

Unlike Mr Hayward, my work experience has been that it is far better to be upfront with all involved about the problems being faced rather than trying to minimize and down play the problems.

I think that attribute is called honesty here in the US.

Another area where my presence would be beneficial is that I would not be subject to any type of criminal investigations. Bringing me in to replace Mr Hayward though could be seen as a sign that BP and shareholders recognize the need for a complete and thorough housecleaning of all levels of management.

A little research leads me to Forbes Magazine which shows that Mr Hayward received compensation totaling more than 3 Million pounds for 2009. As a good faith gesture, I will work for a salary of $500K per annum with an additional bonus level of another $500k. You’ll save money and I will be able to pay my bills! A true "win-win" for both sides.

I would be remiss not to mention the areas where Mr Hayward is a better candidate. Unlike Mr Hayward, I’m not even six feet tall and do not have a full head of hair so may not be the ideal appearing person for televised Congressional hearings. But I think you will agree that after Mr Hayward’s performance yesterday, the image thing might not be as important going forward.

So if you feel the need, there’s an old time Quality Assurance professional available; guaranteed to be a PITA in the important areas. As a guaranteed PITA, the job WILL be done and done correctly or you can fire my a** after a year, no hard feelings.

And because I can:

Cross Posted from Just A Small Town Country Boy

As One of the “Small People,” I Can Use a Job

10:27 am in Uncategorized by dakine01

Is it a pre-requisite for senior executives at BP to be so gaffe prone? First we have Tony Hayward and his foot chewing now followed by the linguistic stylings of Chairman Carl-Henric Svanberg:

I hear comments sometimes that large oil companies are greedy companies or don’t care,” he said. “But that is not the case with BP. We care about the small people.

The apologists have been out in force, attempting to find ways to explain this as anything other than arrogance and a true reflection of Svanberg’s (and BP’s) feelings for those who are not them. The most common excuse I’ve seen is that it’s purely due to language difficulties, since English is not Svanberg’s native tongue.

I will grant that English is a difficult language to learn and master and I applaud all those people around the world who have elected to learn the language, exceptions included. They’ve mastered something I’ve spent my life trying to master while I’ve not been able to master my few attempts at learning another language (Spanish was the one I attempted and though my instructors were not the greatest, it’s still my own damn fault for not learning.) I have a reasonable knowledge of grammar and a fairly good vocabulary and for the life of me, I can not really come up with a phrasing or way that Svanberg could have said this without insulting others. Rather like Leona Helmsley‘s "Only the little people pay taxes" quip.

But I’m not going to pick on BP alone today. After all, we now have additions to the Larry Kudlow School of Economics that postulates that folks collecting unemployment are only looking for a paid vacation with Diane Feinstein and others joining the chorus. From HuffPo:

Lurking beneath deficit concerns, for both Republicans and even some Democrats, is the suspicion that extended unemployment benefits discourage job-seeking. Rep. John Linder (R-Ga.) said last Thursday, for instance, that extended unemployment benefits are "too much of an allure" for people to look for work. Even Senate Democrats who voted in favor of the bill, such as Sen. Dianne Feinstein (D-Calif.), are starting to look toward winding down the programs.

"We have 99 weeks of unemployment insurance," Feinstein said. "The question comes, how long do you continue before people just don’t want to go back to work at all?"

Or Orrin Hatch calling for those collecting unemployment to be subject to drug testing. Tell ya what Orrin. I’ll go along with drug testing for those collecting unemployment if you and the rest of the Senate and House will also submit to drug and alcohol testing as long as the Unemployment rate is over 5% and the Underemployment rate is more than 10%. If anyone in the Senate or House tests above a .01 for alcohol or has any type of prescription drugs in their system, then they are docked at least a week’s ‘wages’ each time it happens. Deal? Nah, I didn’t think so.

So here we are. Today’s Job’s Report says:

New claims for jobless aid rose last week while consumer prices notched their largest decline in nearly 1-1/2 years in May, suggesting interest rates will remain ultra low to nurse the fragile economic recovery.

Fears that growth could be slowing were heightened on Thursday by a report showing factory activity in the country’s Mid-Atlantic region braked to its slowest pace in 10 months in June. The employment gauge fell to its lowest level since November.

So to answer those in the Kudlow School of Economic Theory, no, people who are collecting unemployment are NOT using it as a chance for a vacation. If given a choice between $300 a week in unemployment or a job paying $1,000 a week with benefits, we’ll take the job thank you. We want to work. We do not want hand-outs. So go ahead and slash the Jobs bill in the interest of a deficit you created with tax cuts for the rich. We do pay attention even if the talking heads and all your Village idiots assume otherwise.

And because I can:

Cross posted from Just A Small Town Country Boy

Too Numb to Cry So I’ll Try Laughter

1:23 pm in Uncategorized by dakine01

Have I mentioned today that I NEED a FREAKIN’ JOB?

Well I do and as I search for employment sometimes it’s all I can do to stop myself from just curling up in a fetal position, cursing the fates and furies/Gods and Goddesses or any other entities or "supreme beings" that I can blame.

But now that I’ve gotten the obligatory whine out of the way, I’m going to talk about some of the folks who are in far worse straits than I am, as difficult to believe as that may be.

If you want to have your heart torn out, watch the video with this Seminal Diary from Michael Whitney. Or read this diary where Michael talks with some of the fishermen effected by BP’s environmental catastrophe (it seems Tony Hayward decided to upgrade it from the moderate environmental impact he first called it).

I’m only without a job. The folks in the Gulf of Mexico that are dealing with this disaster are out of a life style. As Michael reports in the second linked diary above:

Now he has nothing but oil. Raleigh estimates that, since the oil sinks into the soil where the oysters grow, it will be at least 10 years before Grand Isle fishermen can harvest oysters again.

Ten years can flash by in an instant it seems, but not when you are waiting for the return of your livelihood. I’m six years into my unemployment/underemployment life now and can’t imagine facing another four years of this. I never anticipated I could go this long; yet as I say, I’m blessed compared to what these folks are looking at. And there are thousands more who lived and worked along the Gulf who are looking at years and years of lost wages, lost lives.

I could never do this type of work. Nor could I do the work on the oil rigs. A few years ago I tracked down a high school classmate who has worked oil rigs in Alaska and the Gulf of Mexico and tug boats plying the Intracoastal Waterway and was visiting him on Tybee Island, GA. After I had gotten motion sickness while we were standing on floating docks, Joe told a story about how he’d been on a rig in the Gulf when a storm came up. He said there was an accountant visiting the rig the night of the storm who got deathly ill from the motion. I told Joe, that was me.

But it’s not just the motion. All these people in the Gulf affected by this disaster are used to hard work. Now they are watching their lives be smeared by the actions of the "Drill Baby Drill" crowd who can’t seem to connect the fact that all those regulations they decry and worked to avoid, were in place for a reason. As Steven Pearlstein noted in a column at the Washington Post the other day,

The biggest oil spill ever. The biggest financial crisis since the Great Depression. The deadliest mine disaster in 25 years. One recall after another of toys from China, of vehicles from Toyota, of hamburgers from roach-infested processing plants. The whole Vioxx fiasco. And let’s not forget the biggest climate threat since the Ice Age.

Even if you’re not into conspiracy theories, it’s hard to ignore the common thread running through these recent crises: the glaring failure of government regulators to protect the public. Regulators who were cowed by industry or intimidated by politicians. Regulators who were compromised by favors or prospects of industry employment. Regulators who were better at calculating the costs of oversight than the benefits. And regulators who were blinded by their ideological bias against government interference and their faith that industries could police themselves.

I’m only without a job but I still have my family and friends, most of whom are, if not OK, at least available for support. The folks affected by this disaster are looking at all their families, friends, neighbors and they are all in the same horrendous situation. I can not begin to fathom the pain they are in as they watch their oil fouled lives begin and see the mealy mouthed promises and word parsing from BP and their elected officials.

Please visit the Firedoglake BP Oil Disaster Page for their on-going coverage.

And because I can:

Cross posted from Just A Small Town Country Boy

Jobs, Elections, Corporate Cluelessness, and Reading the Tea Leaves

12:52 pm in Uncategorized by dakine01

Have I mentioned recently that I NEED a FREAKIN’ JOB?

Whew. OK, now that I’ve gotten that out of the way, let’s move on to the top stories of the day.

It seems there were some elections yesterday of the Primary type nature with the results being a confounding mess primarily to those Beltway Villagers who sit and talk amongst themselves about how wonderful all their fellow eaters of cocktail weenies are but have no clue about life out here in the rest of America.

So we get to read the "analyses" from the pundits who latch onto the easiest theme that reinforces what they already felt, regardless of reality (such an unreal concept reality is). Hint: the elections in KY, PA, and AR were NOT purges from the left or right.

Let me see if maybe a few headlines from today’s news sites on the web can maybe explain a bit of the disconnect. From the NY Times we have this

Teaching Candidates Aplenty, but the Jobs Are Few

and this:

Clients Worried About Goldman’s Dueling Goals

From the Washington Post comes these gems:

Voters’ anger at Washington may overpower any fixes

Dodd backs off alternative derivatives proposal in overhaul bill

And from MSNBC is this one

BP, Toyota flunk damage control

Contrary to popular Beltway wisdom, people are not always total idiots, mesmerized by the latest American Idol competition or the latest "scandal" involving a new Miss USA. As Jane Hamsher points out in discussing the Arkansas results,

Bill Halter’s no raging liberal. But he is a Democrat, whereas Lincoln is a corporatist. Those looking to interpret the race’s results on a strict right-left continuum are going to miss the relevant dynamics entirely.

David Dayen also makes a similar point in this discussion of the "FinReg" dance currently appearing in the US Senate:

It’s not that voters had any knowledge of this when they went to the polls yesterday. It’s that they’ve seen shenanigans like this consistently for the last five years. They’ve seen it on the Military Commissions Act and the Iraq funding bill in 2006, the FISA bills in 2007 and 2008, TARP in 2008, the health care bill in 2009, and now FinReg in 2010. They’ve seen defeat grabbed from the jaws of victory over and over and over again, and they simply have lost all trust in this crop of elites to do the job. And it’s hard to argue with the public on this one.

We are not stupid. We are not mushrooms. Many of us get our news from multiple sources specifically to avoid being sucked into the single source spinmeisters. We make informed decisions. We are angered by politicians who attempt to use wedge issues. We are angered when we see science ignored then see political and corporate talking heads saying "But no one could have anticipated…" while the next article quotes the scientists who did in fact anticipate something.

I don’t particularly care to be angry all the time. It is decidedly counter-productive. Yet, it is almost unavoidable when folks in power are lying to me and I know that they are lying and they know that I know and do it anyway.

The politicians who won races yesterday are not perfect. Most of them are no where near as liberal or progressive as I am. But so far, most of those politicians have not lied to my face. They aren’t p*ssing on my leg and telling me it’s rain. And they haven’t (yet) crawled into bed with the corporatists and lobbyists.

At one time, there were leaders at all levels of politics in the United States and it wasn’t that long ago. Now, we see ads for folks running for office proclaiming that they are not professional politicians but just concerned citizens (who happen to be millionaires/billionaires able to self fund) What a world and nation we’ve become where the rich become viable candidates because they can self fund their campaigns and buy elective office.

Forgive me for ranting but right now there are far too many problems facing us as a nation and world where business as usual in the beltway does nothing for us but exacerbate the mess.

And because I can:

Cross-Posted from Just A Small Town Country Boy