The Old Special Relationship

BP drilling engineer Brian Morel complained about cost-cutting shortcuts that put the operation of the in an e-mail on April 14. He said the errors created a potential “nightmare well” 6 days before an explosion destroyed the Deepwater Horizon offshore drilling rig, killing 11 crew, and creating an environmental disaster. The e-mail and other documents were released by the U.S. House of Representatives Energy and Commerce Committee, which said the British oil giant took shortcuts and made mistakes in the Gulf of Mexico.

My article yesterday about the rift in the special relationship was about economic policy and football, but the only response I got was over BP, from DH, a reader in Spain, who is British. He wrote:

Thanks as always for what is a very entertaining letter. Some comments on the BP debacle:

President Obama — thought to be strong on foreign policy — is showing himself up as an amateur, with his cowardly ‘blame the Brits’ rhetoric. Nationalism in any country is never pretty, but when its fervour is directed at your long-time allies it’s particularly distasteful. The Brits have gone to war with [sic] the Americans again and again; Britain and America are likewise two allies who have not endured massive rifts even when they have ideologically opposed governments in place. Why Obama would wish to endanger that long-standing relationship with his schoolboy politics beats most of the British.

It’s still unclear whether this was BP’s fault, or someone else’s. There’s been no conclusion of any investigation, and hence such vitriol is misdirected. British people feel compassionately for the Americans who are suffering this disaster. And we are sorry that it happened. Sometimes, that’s the best you can say. If, as you suggest, the hypothetical American Petroleum spilled lots of oil on a British coastline, there probably would be a bit of backlash too. But one thing is for certain: the Americans would never ever allow one of their nation’s largest companies to go under because Downing Street held them to ransom and refused to act in a civilized and fair manner.

I replied:

I think you are wrong. I do not consider myself an amateur in international relations. I do however think that Tony Hayward is an amateur. Every time he opened his mouth he put his foot into it.

That is part of the basis for the Obama ire at BP. Morevoer the journalistic investigations by the Wall Street Journal (ok Murdoch is not merely a British press baron but also an Australian) and other official investigations show BP tried to save money by cutting corners on the well capping, causing the blowup.

We are not running a vendetta against Britain here. We are not tearing up our copies of Shakespeare and Dickens or ending our infatuation with Virginia Woolf. This is a perfectly civilized set of moves against a company which deserves it.

That British pension plans own so much BP is not going to save the company or its top brass and geologists from falling on their swords. Hayward first. Lord Browne being gay was much more careful when he opened his mouth. Of course he also lied which is why Hayward took over. But I think Browne would have handled it better.

As for British stalwart support of US war aims, what we learn it in the USA is that we went over and fought to get your country off the hook in World War I and then again in World War II. And now Benedict Arnold Britain is planning to pull out from Afghanistan where they failed miserably in the 19th century.

FYI our longest-term ally is France which fought on the US side in our Revolution against Britain. When the GI’s landed in France in 1917 they said ‘Lafayette, here we are.” They did not say ‘George III, here we are.’

Obama is not holding BP up to ransom. He is requiring that BP defer its dividend if required to create an escrow account, as exists under the laws of both our countries, to cover the eventual costs of the US cleanup and the rest of the disastrous consequences of BP’s missteps. If BP is proven innocent by investigations and court cases to come, the money will be returned to the company. This is sad for the pensioners who may not be around by then. but it is merely another argument for global investing. Diversifying helps.

Nobody said that British pensions should be invested only in countries with British as their first name, but even so there are plenty of other options.

To which DH replied:

Like most of my countrymen, I do revel in a good debate! I note your arguments, but however I slice this, I cannot bring myself to agree with you at all..

The attitude of President Obama (who, in his own words, is “looking for some ass to kick”) has been anything but civilized. A civilized and genuine way of dealing with this means focusing on the problem before the culprit, the solution before the disaster. Obama has done nothing at all but join in the whining of the underclass, and it is deeply unbecoming.

Obama ought to have left Hillary Clinton to deal with any and all international aspects of this crisis, and focused his energy purely on the southern states which have been affected by the oil spill. Instead, we are presented with yet another (damaging) example of Obama micro-managing.

I do of course agree with you regarding America’s traditionally special relationship with France.

Obama is holding BP to ransom, all for the sake of white southern votes (those he most needs right now). The man who claimed he didn’t care about being an effective one-term President is now selling out yet another chunk of US goodwill to get his additional 4 years in office. Trouble is, he’s chipping away at the strength of the country by doing so.

To which I replied:

Now you are simply criticizing the US politician to defend the UK company. It reminds me of Oscar Wilde’s remark about foxhunting, the unspeakable pursuing the inedible. Politicians globally attack companies from their own country or other countries. There isn’t anything uncivilized about kicking ass. It’s how pols behave, especially when there is an oil leak into the Gulf of Mexico 4 miles down and only BP can possible figure out how to cap it. Hillary Clinton would not be able to help.

There will be no blog Wednesday because I am attending conferences all day. More available for paid subscribers…

Sincerely, Vivian Lewis Global Investing

Kissinger’s Victory

Here are some comments from across the Irish Sea about BP’s woes, from Paddy Power, which collects bets made with Irish bookies:

Troubled oil giant BP have today been cut from 10-1 to 4-1 to file for bankruptcy before the end of the year according to leading bookmaker Paddy Power.

The cost of the ongoing disaster in the Gulf of Mexico is growing daily and recent demands by the US government for BP to set aside billions to service potential claims could hasten its path towards potential bankruptcy.

Tony Hayward remains odds-on to step down as BP CEO before the end of the year but has eased slightly in the betting from 1-2 to 8-11 on the back of some large bets, including one of £10,000, favouring the Englishman to weather the storm.

Paddy Power are also quoting odds of 10-1 for Hayward to serve any jail time as a result of the oil spill.

Henry Kissinger won. Saturday was a great day for all first generation Americans (including me) whose daddies played and cheered for hands-free European football (soccer) rather than the USA version of the game. The US team at the World’s Cup tied in its opening game against England. We play Slovenia next, on Friday.

Kissinger in the 1980s advocated that our country prepare to compete in soccer, a game I suspect the Secretary of State had learned during his boyhood in Fuerth, Germany, as my father had learned it in Bad Hersfeld.

Thanks to his sharp eyes and quick reaction, my father was a goalie, and more successful playing against the Greek team in Inwood than the poor English goalie who fumbled a let the USA score. (For some reason England, which is not a country, has a team along with Scotland and Wales; other teams represent countries.)

The soccer victory is another dreadful comeuppance for the Brits, along with the mess caused by former British Petroleum, now BP, in the Gulf of Mexico. The Mayor of London, Boris Johnson, deplores “anti-British rhetoric” by Americans over the oil disaster spewing out as much as 40,000 barrels per day onto our fragile coastline. If the ultra-jingo Brits were confronted by a similar horror perpetrated by an outfit called American Petroleum off their shores, I suspect the rhetoric would be much nastier.

There is however a serious mid-Atlantic split in our alignment with Britain over budget deficits. The new British Prime Minister, David Cameron (like Boris Johnson, a Conservative and Old Etonian) is calling for austerity and budget cuts to reduce the deficit. Meanwhile, US policy calls for delaying counter-cyclical budget balancing moves because the recovery is still fragile. This is not the right time to imperil economic growth by reducing deficit spending, our USA economists are saying (of course they are quoting a British theorist, John Maynard Keynes.)

But the White House-Treasury line is being opposed by our own native-grown Congressioanl Republican pre-Keynsians who want to cut spending and stimulus measures now. The new austerity advocates here are ignoring the fact that unemployment is still excessive. They are preaching here as in Britain in favor of a virtuous cycle, whereby cutting spending and taxes revives confidence. I have to confess that I do not see how this can happen.

Injecting money into the economy, cutting interest rates, buying government debt stopped the 2007-9 economic collapse from turning into a repeat of 1929. This was the policy not just of the Democrats, not just of Labour in Britain, but of both parties.

Tax-cutting has become a knee-jerk reaction to every problem in the eUS conomy for some. But in the present situation, cutting taxes also means cutting benefits for people and programs funded by Washington (even if administered by states). This salve-the-rich Old Etonian rhetoric ignores real suffering, real need, among some less privileged lower-class Americans who are not paying taxes because they are out of work.

The one thing we should not bring over from Britain is its devisive class divisions.

More for paid subscribers from Singapore, Britain, Brazil, Greece, Canada, Panama, Israel, China follows.

Sincerely, Vivian Lewis Global Investing

P.S. I’m sorry but new membership in the Global Investing service is currently closed, if you’d like to be notified when new membership opens click here and enter your primary email address in the required field. And I’ll guarantee you receive first notification if and when new memberships are being accepted.

Reader Comments & My Replies

Subscriber SR wrote:
Am I wrong that sometime during the Clinton administration they decided that banks needed to lend to “people of color in the less desirable parts of the cities?”

This then forced the banks to make loans which they knew could not be paid. They had to figure a way to make it safe for them, hence the packaging and sub-prime debacle.

That to me makes it a government created problem which financial people solved in the only way possible: they packaged it and sold it to suckers. Where would we be if the government had not mandated those loans to people who only deserved them because they were minorities?

I agree private enterprise is certainly capable of evil on their own. It is just that government does it worse and with less recourse.

I replied:
You are entitled to your opinion. But I disagree. Nobody forced the banks into this tactic. They did it because they thought it would pay.

The US government subsidizes mortgages through the tax code. It created Fannie Mae and its rival Freddy Mac to encourage home ownership. Both of these goodies predate Bill Clinton’s administration.

So did rules against “red-lining” which cuts lending to people of color in less desirable neighborhoods. All this has been part of US policy for ages, backed by both parties.

As FNMA was a big source of funding for the Democrats, the Republicans finally got it “so-called ha-ha” privatized.

How do you get from this to blaming the government for the practices by the banks over mortgage backed securities, a market they voluntarily entered in order to compete with FNMA? This seems to me to be a reversal of the reality.

Banks went in for NINJA lending because they figured they could always repossess the homes of people of color in lousy neighborhoods because real estate prices would rise forever.

They were wrong. so were the borrowers, those who lied and those who told the truth. So were those who sliced and diced the mortgages for the banks, So were those agencies which rated them AAA. So were those who bought the CDOs which were so safe and paid so well.

But why do you think the government is at fault except based on some prejudice? There is plenty of blame to go around and not hit poor Mr. Clinton, who has so many other things feel guilty about.

We have readers across the political spectrum. In contrast to SR, here is what reader SF wrote.

Bravissima for this email!

President Reagan promised fiscal responsibility. At the end of his terms there were a trillion dollars of new federal debt; far more millionaires and some billionaires created, thanks in part to lower income taxes; tens of thousands of good factory jobs exported, many with help from USAID funding; a bigger, not smaller federal government; EPA gutted; the costs of the deregulation-instigated savings and loan crisis; and federal deficits as far as the pre-Clinton era eye could see.

As for ‘too big to fail’, in the financial sector that really means: too big for us to afford.

Oliver Wendell Holmes said it right: taxes are the price of civilization.

My business does not gain from political controversy. I had two cancellations this week, one from a Californian named Mohammed over my alleged support of Israel, and another from a disgruntled standard American over politics.

While I know bashing unions and strikes has become something of a shibboleth among Americans, I’m reminded of the Polish Solidarity movement and Lech Walesa when I read about Chinese workers picketing and demanding a union.

They work for Japanese and Taiwanese firms seeking cheap, abundant, and docile labor. What these foreign companies are getting is The Weavers:

Oh you can’t scare me; I’m sticking to the union

I’m sticking to the union, till the day I die.

To keep in business, I will stop getting into US political debates until I cannot resist commenting again. More on British, Argentine, Spanish, Singaporean, Korean, Swiss, Brazilian, and South African shares, and a ‘sans-commentaire” note regarding a controversy in France. Become a paid subscriber to read the full version of Global Investing.

Sincerely, Vivian Lewis Global Investing

Death Panels

January 10th, 2010

Trading Strategy