BP's choice: Plunder Company Assets...and the U. S. Taxpayer

It is a time-honored operation: Enrich owners and Insiders while you are able by plundering a troubled company's assets.

In 1999, Service Merchandise (a retail chain) was forced into bankruptcy by its creditors. The Bankruptcy court froze the company's assets...except, of course, for the normal fees associated with 'administering' the bankruptcy and paying remaining operating costs. The Board of Directors of SM prompty hired themselves to administer the bankruptcy, and began draining the company of its cash assets. One upper-level manager, disgusted with their actions, leaked the plan to a unnamed blogger (ahem...), who prompty posted the details (using an anonymous handle) on the Yahoo! Finance Message Board for the company. When the news hit, SMs stock fell to less than a penny per share. The now-infuriated Management (who owned plenty of stock themselves) sued Yahoo!, asking them to reveal the source of the leak, claiming there were violations of Insider Trading laws. The Court declined to grant their request.

The year before Enron collapsed, top Executives paid themselves 1.4 Billon (yes, Billion) dollars.

In the eight years before the collapse of Lehman Brothers - which ignited the financial crisis that still affects us - the Chief Executive, Richard Fuld, took home 480 million dollars from the company.

Citigroup's Executive was paid 31 million the year they requested a taxpayer bailout.

Which brings us to BP.

BP insists it will pay all 'legitimate claims.' Does that mean they will compensate fishing charter businesses and shrimpers for the loss of their future earnings when they go out of business? Loss of tourism on Florida beaches? What precisely *is* a 'legimtiate' claim in their eyes? The estimated daily flow of oil has increased from 1,000 barrels per day when the crisis began, to the current 40,000per day. While no one yet knows the extent of this disaster, what is known is that this will cost, at a minimum, in the tens of billions of dollars.

So, it wouldnt make sense for BP to give away its assets...or would it?

BP announced it would decide next month whether keep a quarterly dividend of 14 cents a share for the second quarter, a payout of about $2.6 billion.

To be fair, BP regularly pays out this dividend to its investors, so it's not as if they are seeking a new venue in which to squirrel away assets. However, the prospect of untold bilions in clean-up costs, and the growing long-term possibility of a BP bankruptcy - means that taxpayers, once again, would be left with a bill that ought to be covered by Corporate assets. Regardless of their culpability, if BP runs out of cash, BP can't pay the bill.

Writing for the New York Times, William K. Black, an associate professor of economics and law at the University of Missouri–Kansas City, and author of “The Best Way to Rob a Bank is to Own One,” said:

"...Dividends not only put money out of the reach of the U.S., but also reward the people most responsible for causing the damage. BP’s officers and employees, in their capacity as shareholders are the most obvious example of this, but shareholders are also responsible as owners of the corporation. The deal shareholders make when they invest is that if the corporation cannot pay its debts to creditors the shareholders get nothing."

Not surprisingly, many British shareholders are furious that the issue of their dividends is even being discussed. Even some U.S. news commentators have questioned "punishing" the shareholders.

To them, I quote Juan de Medina, a Dominican monk writing in Salamanca, Spain, in 1550, and one of the world's first 'free market' economists:

"Those who by their own will go into business...must expose themselves to profit and loss. And when they suffer a loss, they must not transfer it to the buyers or to the Republic."

What he said.

Should BP declare a dividend, Congress needs to pass legislation requiring that oil companies engaged in deep-water drilling place cash in a cleanup escrow account...and if they won't act, then the businesses and States of the Gulf Coast should file enough claims to force BP into a Reorganization, in which case a Bankruptcy Court could then order that BPs assets remain within the corporation and within this country to pay for the cleanup.