Blog 2023 Malcolm Blair-Robinson

A Missing Piece

BP has now agreed to set up a $20 billion dollar fund and cancel its dividends, as this Blog indicated it would have to a week ago. In the deal announced after talks at the White House there is a large piece missing. President Obama indicated this tidy sum was ‘not a cap’ on BP’s potential liability from law suits and fines. There is therefore a ring fence for the fund but none for BP as a whole.

The Times now reports that lawyers in the US are beginning to see Chapter 11 as a very real prospect, again as prophesied in my post 18/06/10, if BP’s liabilities remain open ended. There are serious problems surrounding this. Such is the public anger in America, with mid term elections looming, President Obama would be unlikely to obtain Congressional agreement to a cap. On the other hand without one BP in its present form may go under. Chapter 11 is not the end of the world. General Motors has now come out.

It would allow an orderly re-structuring, maybe with a bad US segment to be run off and a good one to be sold on. Whichever way would be bad news for current shareholders. Because of the big holding of pension funds  in this company on both sides of the Atlantic, anger needs to be tempered by self interest and a cap agreed. In the triangle of politics, oil and pensions, the latter may in the end be seen as the critical issue. Anger will then focus full square on the executives of BP. The content of those emails may be their undoing.

Reform comes to the City

The Chancellor’s speech last night at the Mansion House was hugely encouraging. At last there is evidence that the nature of the problems we face as well as the scale is understood. I am not very particular about the nature of regulation. Any logical system properly organised will work. The current system was illogical and failed. But the real failure was in control. An economy on any scale, whether personal, local, national or global is like a fire. Controlled and burning within its boundaries it is a vital resource upon which all civilisation depends for almost everything. Left to burn out of control it eventually consumes all.

The historic mistake was to believe economic activity could be regulated so that it would not have to be controlled. The result is a banking system which ran amok pouring money into domestic and commercial property massively inflating above their worth these assets and fuelling personal and national debt beyond the capacity to manage and in some cases ever to repay. Meanwhile industry and innovation were starved of funds. We now have an economy in debt up to the gills and a complete imbalance between wealth creation and consumption.

This blog is happy with the new regulatory proposals but applauds to the rafters the new powers of the Bank of England to control an overheating economy by shutting off funds. In other words the new Financial Policy Committee of the Bank of England with the remit to control (or conversely boost) overheating (or under-performing) segments of the economy is the absolute key safeguard from the lunatic disregard for reality which got us and the West into this mess in the beginning.

As set out in my book 2010 A Blueprint For Change, from a more humble voice in a more rustic setting  than the grandeur of the Mansion House, there are certain matters of fact and logic at the core of an economy, whatever  political ideology guides it, and if it is to work, these have to be stuck to.  There are no clever theories nor wonder innovations which can circumvent the truths at the core. It is a great relief to discover we have a Chancellor who understands this (the Bank Governor has known this for quite a while). We must hope he can deliver. He has gone up many notches in my estimation and I am inclined to believe he can.