Thursday, May 27, 2010

Credit default swaps originated with Exxon Valdez; more on BP's sins

There’s a long history of changes in the settlements after the Exxon-Valdez 1989 disaster, including a ruling by the US Supreme Court in 2008 (a “Bush” court perhaps) to limit Exxon’s punitive damages to actual losses ($507.5 million).

In 1994 Exxon had obtained a $4.9 billion line of credit from JP Morgan. Ultimately, through a financial chain reaction, the European Bank or Reconstruction took out an insurance policy on XOM’s defaulting, a money maker for everybody, and what amounts to a credit default swap.  The story from Minyanville appeared today on Yahoo! finance.

So, 60 Minutes notwithstanding, credit default swaps have been around a while; they didn’t start with Dr. Michael Burry (although introverts who sit behind computer screens and figure out what’s going wrong in the world before everyone else does, or who figure out what can go right, often make a big difference in how things turn out – look at the “power” that Facebook has).

On CNN’s LKL yesterday, there was talk that “ordinary investors” like retirees with oil stocks in mutual funds should not be penalized for the “criminal negligence” of the few in the oil industry (including 11 deaths, meaning that criminal prosecutions could result in involuntary manslaughter charges). But investment, by its very nature, since it depends on ownership rather than direct labor, carries all the responsibilities and liabilities that go with “property rights” as libertarians see things.

Today the CNN news staff has called the BP Deepwater Horizon oil spill the worst in US History, link here.

There is some optimism today that the “top kill” procedure is starting to work.

Barbara Starr has a CNN report on the question as to whether the US Navy and Coast Guard should take over managing the spill and closing it.

Daniela Perdomo has an article on leftist AlterNet, “10 Things You Need (But Don't Want) To Know About the BP Oil Spill: How the owner of the exploded oil rig has made $270 million off the disaster, and nine other shocking, depressing facts about the oil spill.” Link here

At noon Thursday president Obama announced a six-month extension of the offshore drilling ban, and some suspension of drilling operations, link here.

Wikipedia attribution link for Coast Guard picture of controlled burn in the Gulf.

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