Posted by: theoptimisticconservative | June 19, 2010

Of Course It’s a Shakedown

Joe Barton (R-TX) is right:  the $20 billion escrow fund is a shakedown. Not because BP isn’t liable for the oil spill, and not because BP shouldn’t help the people losing their livelihoods on the Gulf Coast.  But because Obama extorting the escrow fund from BP is an exercise of executive power outside the rule of law.

Following the rule of law would produce relief for the oil spill’s victims.  It just wouldn’t put Obama’s appointee in sole charge of a $20 billion fund.  That has a meaning beyond the “Chicago” implication of pure extortion, fund-skimming, and payola.  It means Obama couldn’t use the money to cushion the near-term consequences of his own policies.  He’d be constrained by that pesky rule of law, if he weren’t holding the discretionary purse strings for the damages payouts.

The most obvious current evidence of that relates to his moratorium on deepwater drilling.  A lot of people are losing their livelihoods because of it.  A lot of businesses will be going under, and a lot more jobs will be lost.  The losses will be in the billions just this year alone.  But Obama didn’t have to take this action.  He wasn’t even advised to by professional experts.

A judge in a federal court would take that into account as lawsuits came pouring in against BP.  Even assuming BP is found to have liability through negligence when this is finally adjusted in court, there is every possibility that BP would not be found liable for the drilling shut-down itself, and all the business and jobs lost because of it.

Making BP pay the freight for his agenda-driven, business-killing moratorium is an abuse of executive authority on Obama’s part.  He’s extorting BP for his payoff fund, to be used on the thousands of “small people” who will see their way of life destroyed, not by the oil spill but by Obama’s agenda-perfect reaction to it.

This is worth noting:  within the span of my lifetime, America has become so accustomed to the largely unsupervised overreach of federal agencies that our ability to detect a shakedown in progress has been severely compromised.  We have the confused idea that somebody should somehow be doing something to help all these people, and don’t we have an agency for that? – so why shouldn’t the president, the man in charge of the agencies, step in and take matters into his own hands?

This is, however, confused sentiment.  It’s pure sentiment, with no temper from wisdom or judgment.  It’s not a sound basis for government, no matter how we feel and no matter what the problem is.  Governments good and bad operate on precedent, whether you like it or not, and one shakedown tolerated will lead as night the day to more shakedowns.  Eventually one of them will get to your doorstep.  No one is so perfectly positioned in his universal immune-victim status as to never face being sliced through the mid-torso region by the Super-Whammadine Shakedown-o-matic.

This is SEIU/UAW tactics writ large – and those tactics thrive on the government-by-agency paradigm.  That’s something the original Progressives were always wrong about:  creating professional government agencies doesn’t minimize corruption, it helps corruption become more pervasive, and yet hide in plain sight.  It makes it seem more and more natural over time for government to be regulating us, in ways we would object to if we were presented with a decision-point, as we are on the floors of our legislatures.  Eventually, we are being regulated – to our material cost and someone else’s material reward – in so many ways that the average mind boggles, and no longer distinguishes readily between what Congress is lawfully doing, in the glare of the public klieg light, and what executive agencies are merely getting away with because hardly anyone but their victims knows they’re doing it.

Consider this:  Andrew Napolitano has pointed out several times on Fox that federal law actually caps the damages oil companies are liable for when they drill offshore.  (I think the amount is hilariously low, like $75 million.)  Naturally, the oil companies sought such caps.  Equally naturally, Congress didn’t set the one in question while being dangled from a 58th-story window by thugs named Ponch and Guido.

Congress chose to do this for reasons that are no doubt corrupt, because they are self-serving and short-sighted; but money probably didn’t change hands in a way that’s literally unlawful.  The transaction came about, most fundamentally, because we accept so much arbitrary regulation now.  Add the risk-waiving condition created by this cap to the crony-ish relations between the Minerals Management Service and the oil industry, and you have a recipe for, well, a mighty good time for a bunch of people in government, in both the legislative and executive branches.

Suppose Congress had not set such a cap?  Oil companies would have needed to pay a lot more for insurance.  They would have been less likely to drill in deep water near America’s coasts.  Drilling elsewhere, in waters governed differently by other nations, would have been more appealing at a given price point for the product.

They would have been more eager to drill in shallower water, where the risks aren’t nearly as great; but of course, we don’t let them do that now.  Our gas would have cost us a bit more, reflecting the risk premium that would be represented more accurately in the cost of insurance than by the arbitrary cap set by Congress.  BP would have been more anxious to avoid a drilling accident, and would probably have routinely paid more to execute the whole process because doing so was a way of keeping insurance costs down.  When an accident did occur, the insurer would have to hemorrhage money in settlements, and premiums would go up for everyone they insured, not just BP.  But BP and the private insurer wouldn’t be liable for the consequences of unnecessary actions taken by the government.

Darn good thing Congress spared us all that, huh?  With BP’s liability capped by federal law, we’re left with Obama and his $20 billion slush fund to address the job and property losses.  And hey, the good news is, with BP’s shareholders and investors – many of them Americans – to shake down, Obama doesn’t have to let this crisis go to waste!  He can shut down businesses and jobs for his own political reasons, having nothing to do with the oil rig explosion, and make BP pay off the people he’s hurting!

On such a thread hang our civil rights in Obama’s America.

Cross-posted at Hot Air.


  1. Confusing. Following the rule of law would produce relief for the oil spill’s victims.

    Contradicting. Consider this: Andrew Napolitano has pointed out several times on Fox that federal law actually caps the damages oil companies are liable for when they drill offshore. (I think the amount is hilariously low, like $75 million.)

    Please explain.

    And what power did Obama use to get the $20 billion? What power did he abuse? As far as I can tell, he told BP and BP knew they would be dead in the minds of the public if they didn’t listen. That’s not an abuse of power.

  2. […] via Theoptimisticconservative’s Blog. […]

  3. Wesley Ray, you don’t seem to remember Eric Holder’s announcement that the Justice Department is preparing to bring criminal charges against BP. Holder didn’t state what the charges are, just that they would be forthcoming. This is a very heavy club to hold over someone’s head when you want to “persuade” him to do things your way.
    But even if we grant your idea that this is simple persuasion, ask yourself why President Obama even wants this to be a government responsibilty? BP had already promised to meet all claims, without invoking the $75 million cap. So why should the government undertake the trouble of handling this? Only because the rules under which people would be compensated for loss would be different from those required of BP by the courts. They will be the people put permanently out of oil-related industries in the gulf by Obama’s 6-month moratorium.

    • You have just graphically demonstrated that you don’t understand the difference between the civil and criminal law and the different functions of each.

  4. Holder didn’t state what the charges are, just that they would be forthcoming.

    Are you saying that BP’s negligence wasn’t criminal? If so, then we need to be having a different debate.

    And the first part of a trial is informing them of the charges, that’s coming sooner or later and telling a culpable, private company to play ball and maybe get leniency is best for everyone, considering that BP needs to be solvent to pay the bills. That’s not illegal or anything.

    *Ahem*. If BP is a ridiculously irresponsible corporation (which again, I hope is a foregone conlcusion), then why would you expect them to handle this responsibly? Wouldn’t the GOP go after him for being in BP’s pocket, and letting them do what they want with no oversight and (enforceable)expectations?

    BP had already promised to meet all claims, without invoking the $75 million cap.

    Because the alternative is letting them set the standards and the cap. Why is a democratically elected president a worse person to run this than a company that caused this while trying to cut corners for more money. For all we know, they said something as vague as that just in hopes that the government wouldn’t demand minimum accountability.

    Okay, maybe I did miss something. When did Obama (…or even BP) say that the $20 billion will be used to pay back people who aren’t able to work on oil rigs anymore? And why is that supposedly the pressing issue on their minds, more than letting a company that cuts corners CATASTROPHICALLY run the clean up AND compensation?

    And the MMS still hasn’t been cleaned up, and there are dozens of rigs that were approved by them. Isn’t prudent to fix the agencies obvious flaws, then allow them to approve the projects (ongoing or not)?

    • Actually, you need to read more carefully – there is a fund in there to compensate workers for wages lost during the 6 month drilling moritorium – a decision which the administration lied – yes lied – was recommended by “experts”. The beauty of this is that in all likelihood, the drilling ban will go much longer as the platforms will move to other locations and willnot return – the jobs are gone. Why do you think the moritorium is now in federal court, where I imagine the administration will lose, as they lack authority.

      The shakedown is that whether BP is criminally negligent, or just negligent, you have the AG specifically calling for jail time. You don’t think that doesn’t wire the soul of a BP executive to worry about a get out of jail free card.

      Wesley, I must assume you are not asking the question seriously. BP was not stonewalling in making restitution and disagreements are to be worked out in court or arbitration as the case may be. The President had no legal authority to extract $20 or $20B in this case.

      I hold no love for BP. I believe they are the finest example of a crony corporation that asks the government to bend rules in its favor by being close to the appropriate politicians and greasing their palms with campaign contributions; who then make sure the regulators play nice with them – in essence corporate capture of the regulator. This is the world Obama believes in, and therefore it is his model which has failed. And consistent with the Chicago Way, you need to pay up to play.

      The president is a thug and not too far removed from a banana republic dictator. I state that not to shock, or just vent. It is a statement of fact, he just puts a pretty face on it. That Barton couldn’t more eloquently state this fact is his own problem. The central point he made was correct.

  5. i’m waiting to hear from someone in the administration about exactly what BP did that was “ridiculously irresponsible” or constituted criminal negligence. When the Justice Department is able to state specific charges, that will be time enough to say that BP will be charged. Until that time, threatening charges is using a threat, not a legal proceeding.

    After all, Wesley, how would you react if you got into a horrendous accident in which several others were involved (that is the case with BP) and the police announced 1) that they plan to bring charges and that 2) instead of the normal procedures for compensation being followed, you were required to put a large sum into a fund to be administered not by the courts but by an agent of the executive. Wouldn’t that seem odd to you?

    • Your concern for poor BP is indeed touching.

      Under US law, if you spill oil at sea you are strictly liable for the consequences under civil law without the necessity of injured parties having to prove negligence. In other words, all an injured party has to prove is that BP (or its agents or contractors) did it. It is unnecessary to prove that BP was negligent.

      Spillage of oil at sea may also have criminal consequences. The relevant US law, to my knowledge, imposes strict criminal liability. In other words, all that needs to be proved to obtain a criminal conviction is proof that BP spilled the oil (or allowed it escape). The prosecution doesn’t need to prove any ‘mental’ element such as intent or negligence.

  6. Wesley, I dont believe that Margo quite gets it.

    Disaster funds are normally administered by the executive. Normally these funds are provided by the long-suffering taxpayer. What distinguishes this case is that the donor is not the taxpayer but the primary wrongdoer. One would have thought that Margo and other tax-phobes would have been delighted.

    As you have observed, the law has put a rediculously low cap on the financial liability of the oil-exploration industry. The law would have allowed BP and its sub-contractors to escape with a trivial penalty, leaving the taxpayer with the major burden. Moreover, it would have left the victims having to sue for restitution. This would have led to a lawyer-fest, and the delays which are inherent in the legal process.

    We need to look at the genisis of this ‘cap’ and the ‘light-touch’ regulation which facilitated this disaster. Similar to the ‘light-tough’ regulation of the financial industry which delivered the recent crash – de-regulation, ‘regulatory-capture’, and the dismantling of proper oversight, started in earnest with the Reagan administration and was compounded by subsequent (mainly Republican) administrations. The beneficiaries were the billionaire friends of the Republican Party in oil and the financial services.

    Now that we have the inevitable financial meltdown and the worst man-made environmental disaster in this nations history, are the Republicans and their apologists accepting responsibility? Not on your nanny. The Reps don’t do responsibility. They want their bete noire, the government, to take the responsibility! This is called raking in the profits and socializing the disasters. Its on a par with veterans complaining about socialized medicine. It’s also called rank hypocracy.

    Well done, Mr. President, for negotiating a decent initial settlement on behalf of the citizens of this country who were left without an effective remedy as a result of legislation enacted by the Republicans for the benefit of their squalid pals in oil and finance.

    (BTW, The Government negotiates with industry all the time. One relevant area is in the licensing of oil-drilling blocks. It’s not illegal)

    And if Margo is so concerned for the welfare of British Petroleum – may I offer a small bit of legal advice…. If BP believes that one of it’s agents, sub-contractors, or suppliers is wholly or partly to blame for the mess, it can sue the sub-criminal to recover its loss. That a problem for BP and its well-heeled lawyers. Thankfully, it won’t be a problem any more for BP’s victims.

  7. Thanks, Margo, for weighing in with sensible commentary. A time deficit is chewing away at me, but I appreciate the lively debate being kept going by the readers.

    For Wesley Ray, the Obama administration stated on 8 June that BP would be expected to pay the claims of all oil workers idled by the moratorium imposed by Obama. Here’s a link to one report on that; there were many:

    The federal judge’s decision reported today, that the moratorium was imposed improperly, is certainly something that would throw into doubt BP’s liability for claims arising from it — if the claims were being handled in regular channels. You may or may not agree with the federal judge’s ruling, but his ruling is, unlike Obama’s announcement of the $20 billion fund, made pursuant to the rule of law.

    I don’t know what “disaster funds” peterwise is referring to that are “normally administered by the executive,” but if the reference is to relief funds for disasters like Haiti or the tsunami in Southeast Asia, those funds entailed charitable donations by the US government and were wholly unrelated to damage claims made through legal channels. No individual or business that was under threat of prosecution by the US federal government was directed to contribute to them. There is no analogy here. If you have an actual analogy, peterwise, perhaps you can advance it.

    The bottom line on this situation is that a company under threat of criminal prosecution was directed by the president to use its private assets to set up a fund that will be administered by the president’s appointee, without explicit, a priori oversight by Congress. Everything about the situation is a moral hazard.

    The president has no authority to arbitrarily direct a private company to do anything with its own assets. There are lawful means by which to appropriate private assets, but invoking those means entails following specific law as instituted by Congress and executed through the judiciary and/or the duly constituted agencies. That’s not what Obama did.

    In any event, he should not have engaged in any discussions of this kind with a company under threat of criminal prosecution by his attorney general. If a Republican president had done that, the howls from the left side of the infosphere would be deafening — and frankly, they would be justified, and many on the right would join in.

    Moreover, the promise that BP would pay claims to workers idled by Obama’s moratorium was inapproriate per se. It’s not too much to call it unlawful, if the will existed to investigate and impeach over it. The executive doesn’t have the authority to commit the judicially-brokered liability system in that way.

    Nor should it. Obama got around that inherent “check” in our separation of powers by acting outside the provisions of law, and getting a private company to set up a fund administered by the executive, with no sanction from another branch of government or oversight of its management.

    The fact that he did this by exploiting the implication of public anger and the plight of the Gulf coast residents is an indictment of his action, not a justification. Letting chief executives make it up as they go along creates serious danger for our liberties. The president should be constrained by the rule of law no matter how emotional people get about a problem.

    • The analogy is obvious. When a natural calamity occurs in the US – the government, having made the usual declaration, steps in with aid and relief. This is paid for by the taxpayer and administered by government.

      Now, please tell us what “liberties” might be threatened by the President’s perfectly legal negotiations with BP, and the agreement by BP to pay proper compensation without victims having to sue privately? (The “liberty” of BP’s victims not to have the loss caused by BP and its agents properly compensated for because the Republicans ‘capped’ the civil liability of their good pals in the oil industry, perhaps?)

      You don’t seem to have any idea of basic concepts of administrative law as applies in the US.

      • Peter, what was the appropriate legislative action which empowered the executive to do this? Liability by law is capped at some number below $1B, which while perhaps too low is what was on the books. The executive through legislative action can enter into negotiations on any number of areas, unfortunately not on this one. So please, recite the law.

  8. ” Similar to the ‘light-tough’ regulation of the financial industry which delivered the recent crash – de-regulation, ‘regulatory-capture’, and the dismantling of proper oversight, started in earnest with the Reagan administration.”

    Per Michael Smith at Cafe Hayek:

    “The notion that we have experienced an overall net reduction in government regulations is a myth.

    Consider, for instance, the actual track record of the man the left holds to be responsible for a great deal of “deregulation”: Ronald Reagan. His claim to fame regarding deregulation? Well, here is Reagan’s Attorney General Edwin Meese explaining what Reagan accomplished in that regard:

    When Ronald Reagan took office, the Federal Register (the government document that lists all the new regulations going into effect each year) amounted to 87,000 pages every year. By 1985, he had cut that back to something like 47,000 pages, almost cutting it in half, as an example of regulatory reform.


    Got that? Reagan reduced the number of new regulations issued each year from 87,000 pages to a mere 47,000 pages!

    Does it really need to be pointed out that adding 47,000 pages of regulations every year is NOT “deregulation“?

    Note also that you cannot take claims that a given law “deregulates” an industry at face value. For instance, while the Gramm-Leach-Bliley Act removed the Glass-Steagall restriction on mergers of commercial banks, investment banks and insurance companies, it granted the government a new power: the power to veto any such merger if the institutions involved, or any of their affiliates, had a less-than-satisfactory score on their last Community Reinvestment Act test. So while the GLB Act granted one new freedom to financial companies, it further abridged and violated their right to loan money only to qualified borrowers. Is that “deregulation” or simply “re-regulation”?

    Note also that you cannot ignore a whole new type of regulation occurring at the state level: the explosion in state licensing requirements. In many states today, one must go to school and pass an exam to give people hair cuts legally or repair plumbing or do tax returns or style people‘s hair or give a massage or even to sell flowers. See the Institute for Justice for more on this.

    I could go on. Federal employment regulations have continued to grow with the Americans with Disabilities Act and the Family Medical Leave Act. OSHA has continued to expand with the Hazardous Materials Act. The FDA has continually expanded its Good Manufacturing Practices Act.

    Did you mention the trucking industry as being deregulated? What about the new, vastly more restrictive Commercial Driver’s License regulations issued by — guess who? — the Reagan administration?

    We haven’t been deregulated, folks — not when the government is adding thousands of pages of new regulations each year.”

    • I know you went to a lot of trouble digressing into all sorts of irrelevances. May I draw you back.

      The facts are:
      Proper regulation of the oil and financial industries was dismantled by successive Republican administrations starting with Reagan. The ordinary citizens of the US are now picking up the tab. Thankfully the President has persuaded BP to take responsibility for the mess.

      • And of course this is a bunch of garbage – cmon, try harder than this, you sound like a HS student.

        Please state for us all the oil laws that allowed drillers to be less safe doing their business.

  9. Just one thing to add to what JED and Chuck have said:
    If BP is acting in accordance with laws, even those enacted by the Republicans (who have squalid pals in the oil business), then that’s enough for me. Laws are laws. If the laws should be changed, that’s what we have a Congress for. Our system doesn’t allow for one administration to repudiate the laws enacted previously.

    • Still don’t get it, do you?

      There are no laws which make it unlawful for the Executive to negotiate compensation with third parties. The rule of law means both that all are equal before the law and subject to it (including the government and oil companies). It also means that if something is not made expressly illegal by law it is legal.

      If BP decides not to honour what it agreed with the government, there is no civil or criminal liability or sanction either. In such case, compensation for victims would be a matter for legal action by the same victims. The victims would be stuck with the ridiculous cap the Daddy Bush Administration enacted to protect their oil-baron buddies from having to take responsibility for their activities.

      And I fully agree that the law should be changed to reinstate a proper regulatory regime in both the financial and oil industries removed by the Republicans, and to remove the ‘cap’. I say, make these whining oligarcs, not the government or their victims, responsible for their malfeasance.

      Well done, Mr. President for persuading the wrongdoers to take responsibility.

      • No you don’t get it. The executive must act in accordance with the current statutes. What are they please, chapter and verse.

        You are dodging, show your cards.

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