BROADCAST../../../../Broadcast/Broadcast.html../../../../Broadcast/Broadcast.htmlshapeimage_6_link_0
HOME../../../../King_World_News.html../../../../King_World_News.htmlshapeimage_13_link_0
BUSINESS../../../../Business.html../../../../Business.htmlshapeimage_14_link_0
GREEN../../../../Green.html../../../../Green.htmlshapeimage_15_link_0
HEALTH../../../../Health_1.html../../../../Health_1.htmlshapeimage_16_link_0
ENERGY../../../../Energy.html../../../../Energy.htmlshapeimage_17_link_0
SPORTS../../../../Sports.html../../../../Sports.htmlshapeimage_18_link_0
GOLD+../../../../Gold.html../../../../Gold.htmlshapeimage_21_link_0
 
 
KWN Blog




Archives../../../Archive.html../../../Archive.html../../../Archive.html../../../Archive.html../../../Archive.html../../../Archive.html../../../Archive.htmlshapeimage_23_link_0shapeimage_23_link_1shapeimage_23_link_2shapeimage_23_link_3shapeimage_23_link_4shapeimage_23_link_5
To go to KWN “RSS Subscription” page CLICK HERE../../../KWN_DailyWeb.html../../../KWN_DailyWeb.htmlshapeimage_24_link_0

The economic point is that analysts assume there is some quantum of damage, hard to quantify or know in the short run, but still essentially fixed.  They then do their best estimates, compare the results to BP's balance sheet (including projected earnings over the next 5 years), make a judgment about BP's capacity to pay and their estimate of the franchise value and earnings potential net of the payments and then issue buy or sell recommendations at various market levels.


But that's not how the world works.


The damages are not fixed but moving in a critical state system with positive feedback loops.  In layman's terms, the worse things get, the worse they will get.  One year's compensation to a fisherman soon becomes two or three, etc.  Soon getting comped by BP starts to feel better than fishing and who can argue? Ecologies change, vacation habits change, vocations change, etc.  As long as BP has the money, there will be an irresistible dynamic to enlarge the claim until the money is gone.


The political point is related but starts in a different place.


Obama's approval ratings are getting close to those of Nixon, Carter and Bush 43.  History shows that once you drop below 40% approval there is no recovery because you no longer have sufficient critical mass with which to reward friends and punish enemies.


The economy is getting worse, not better.  By election day 2010, unemployment will be higher, real estate prices lower and the banking crisis will be back (or, it never really went away).


Obama hates the English.  They tortured his grandfather in Kenya. His first official act as President was to order the packing up and return of a Churchill bronze bust which Bush had displayed in the Oval Office.


Taking all of this into account, BP is an irresistible cookie jar into which politicians will reach their hands over and over.  Again, the dynamic is not "how much do you owe?" but rather "how much can you pay?".  The answer is that you keep paying until you're broke.  They will also need to demonize BP on a continual basis as a prod to pass cap-and-trade or cap-and-tax and as a club to beat Republicans who stand in their way.  Just look at what happened to Rep. Joe Barton (R-TX) today to get an idea of how this will pay out.


Don't think the law can stop this.  The law will accelerate it.  BP's negligence will turn out to be criminal, not civil and the criminal penalties are exponentially greater than the civil fines and normal tort claims.  Obama will use the threat of criminal prosecution to get more and then use an actual criminal prosecution to get the residual.


BP may not literally go to zero.  It may go to $2.00 per share or so at which point a pre-packaged bankruptcy will be used to transfer valuable assets to, say, ENI, Total or Exxon with some value preservation for BP debt holders.


Follow Jim Rickards on Twitter at twitter.com/JamesGRickards


KingWorldNews.com


To hear the recent in-depth interview with Jim Rickards on King World News CLICK HERE.


../../../KWN_DailyWeb.html
BLOG../../../KWN_DailyWeb.html../../../KWN_DailyWeb.htmlshapeimage_26_link_0