Nothin' Shakin' on Shakedown Street

Writing in the Houston Chronicle, business columnist Lorren Steffy argues that the oil spill liability fund "isn't a shakedown, it's more like a gift to BP":

For the past two months, BP's stock has been battered. Its shares are worth half what they were before the April 20 accident, and it's lost almost $97 billion in market value. That…leaves it vulnerable to a takeover. The fear is that BP would file bankruptcy as part of a merger and attempt to wall off its Gulf oil liabilities.

The fund offers BP investors some parameters for the company's liability, although BP still may be required to pony up more money if the $20 billion isn't enough. BP can pay the $20 billion over three years—an easy installment plan for a company its size.

The columnist acknowledges that "claims paid under the fund won't preclude business owners from seeking further redress in the courts later." But he thinks the arrangement could still help the company avoid some legal costs, since "victims of the Gulf oil disaster may be more willing to accept less money if they get it more quickly." In that case, we could end up with a scenario in which "BP pays less overall than it might have to if some of these cases went before juries in, say, southern Louisiana. In fact, BP may be spared punitive damages completely in civil claims."

Steffy might be on to something. While I'm wary of reading too much into short-term market moves, it's worth noting that BP's stock took a rare tack upwards after the escrow fund was announced. Jerry Taylor of Cato notes (via email) that under the agreement, "BP commits no more money than they probably would have to commit anyway, it gets the feds to buy-in to the disbursement mechanism (reducing the chance of future political wrangling), and puts a federal official in charge of disbursements so BP doesn't have to be the bad guy when claims aren't realized. The fellow in charge, by the way, was 'Dr. No' when dealing with 9/11 claimants, so it's not obvious that the floodgates will open."

Steffy's conclusion:

That's hardly the harsh treatment of private business that [Rep. Joe] Barton bemoaned in his apology last week. Barton later apologized for his apology, but even that ignored the point that the spill fund is more like government-sponsored legal aid for one of the world's biggest oil companies.