Euro Bailout Plan is all about Rescuing Banks and Rich Greeks

Here is an interesting article you may have missed from earlier this month.

Former Bundesbank Head Karl Otto P�hl says Bailout Plan Is All About 'Rescuing Banks and Rich Greeks'

SPIEGEL: Mr P�hl, are you still investing in the euro -- or has the European common currency become too unstable of late?

P�hl: I still have money in euros, but the question is justified. There is still danger that the euro will become a weak currency.

SPIEGEL: The German government has said that there was no alternative to the rescue package for Greece, nor to that for other debt-laden countries.

P�hl: I don't believe that. Of course there were alternatives. For instance, never having allowed Greece to become part of the euro zone in the first place.

SPIEGEL: That may be true. But that was a mistake made years ago.

P�hl: All the same, it was a mistake. That much is completely clear. I would also have expected the (European) Commission and the ECB to intervene far earlier. They must have realized that a small, indeed a tiny, country like Greece, one with no industrial base, would never be in a position to pay back �300 billion worth of debt.

SPIEGEL: According to the rescue plan, it's actually �350 billion ...

P�hl: ... which that country has even less chance of paying back. Without a "haircut," a partial debt waiver, it cannot and will not ever happen. So why not immediately? That would have been one alternative. The European Union should have declared half a year ago -- or even earlier -- that Greek debt needed restructuring.

SPIEGEL: But according to Chancellor Angela Merkel, that would have led to a domino effect, with repercussions for other European states facing debt crises of their own.

P�hl: I do not believe that. I think it was about something altogether different.

SPIEGEL: Such as?

P�hl: It was about protecting German banks, but especially the French banks, from debt write offs. On the day that the rescue package was agreed on, shares of French banks rose by up to 24 percent. Looking at that, you can see what this was really about -- namely, rescuing the banks and the rich Greeks.

That interview is about as candid as one can get. In my opinion it is also accurate. Worse yet, by lending Greece still more money, the ECB has increased the problem.

It should be crystal clear that Greece cannot and will not pay back that debt. The ECB kicked the can down the road. Now it's a far bigger can. I doubt it can be kicked much farther.

For more on this line of thinking please see France Worries About AAA Rating; UK Economists Urge Greece to Abandon Euro; Spanish Prime Minister Losing Support

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

France Worries About AAA Rating; UK Economists Urge Greece to Abandon Euro; Spanish Prime Minister Losing Support; Japan�s Industrial Output Weakens

Inquiring minds might be interested in an international roundup for Memorial Day. Let's take a look at top stories about France, Germany, Greece, the EU, Spain, and Japan.

French Finance Minister Says "Keeping AAA Rating a Stretch"

As Eurozone trade unions prepare to battle over various austerity programs, the French budget minister warns on credit rating.

France admitted on Sunday that keeping its top-notch credit rating would be "a stretch" without some tough budget decisions, following German hints that Berlin may resort to raising taxes to help bring down its deficit.

Euro zone trade unions are preparing for possible confrontations in the coming week if governments impose austerity measures or labor reforms unilaterally. But ministers made clear they were ready to take unpopular steps to prevent the Greek debt crisis spreading to their economies, although doubts are growing about whether the Spanish government in particular has enough support to get its way.

Budget Minister Francois Baroin indicated on Sunday that France should not take for granted its AAA rating, which allows Paris to borrow relatively cheaply on international markets and finance its big budget deficit.

"The objective of keeping the AAA rating is an objective that is a stretch, and it is an objective that, in fact, partly informs the economic policies we want to have," Baroin said. "We must maintain our AAA rating, reduce our debt to avoid being too dependent on the markets, and we must do this for the long term," he told Canal+ TV in an interview.

France has forecast its deficit will hit 8 percent of gross domestic product this year, but aims to bring it down to within the European Union's 3 percent limit by 2013.

UK Economists Advise Greece to Abandon the Euro

The Times Online reports Greece urged to give up euro

THE Greek government has been advised by British economists to leave the euro and default on its �300 billion (�255 billion) debt to save its economy.

The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.

Greece�s departure from the euro would prove disastrous for German and French banks, to which it owes billions of euros.

Doug McWilliams, chief executive of the CEBR called the move �virtually inevitable� and said other members may follow. �The only question is the timing,� he said. �The other issue is the extent of contagion. Spain would probably be forced to follow suit, and probably Portugal and Italy, though the Italian debt position is less serious.

I believe it is impossible for Greece and Spain to pay back those debts. Here is a hilarious video on that subject.

Clarke and Dawe: Lending merry-go-round



Spanish Prime Minister Loses Support

If you think Spain will head full force into austerity measures to shore up its credit rating and reduce its deficit, you need to think again. Please consider Zapatero Losing Credit as Fitch Strips Spain of AAA.

Spanish Prime Minister Jose Luis Rodriguez Zapatero, isolated in parliament and his popularity slumping amid the biggest budget cuts in 30 years, is finding his efforts aren�t paying off internationally either.

Fitch Ratings late last week stripped Spain of its top AAA credit grade and questioned the nation�s ability to grow its economy as the government reduces spending. U.S. stocks and the euro declined after the downgrade to AA+, on concern the European debt crisis will deepen.

�It�s bad news for the government,� said Fernando Fernandez, a former International Monetary Fund economist at IE business school in Madrid. �It shows a lack of confidence in the government internationally. It looks like the budget cuts haven�t helped.�

Zapatero, a Socialist running a minority government, faces strike threats from his traditional allies in the unions and risks being unable to pass next year�s budget because of opposition to his plans. His attempt to rein in the euro area�s third-largest budget deficit has also failed to reverse a surge in Spain�s risk premium amid concern that the European Union�s 750 billion-euro ($920 billion) bailout plan won�t solve the problems of its indebted nations.

The measures are aimed at reducing the budget gap from 11.2 percent of gross domestic product last year to 6 percent in 2011. While they were initially welcomed by markets, pushing up bond prices and Spanish stocks, concerns have resurfaced.

Spain�s Ibex-35 share index fell 0.6 percent at 9:40 a.m. in Madrid to 9,360 points. The Ibex has declined 22 percent this year amid concerns over the economic outlook. Even as bad loans are stabilizing after a two-year surge, shares in Banco Bilbao Vizcaya Argentaria SA have fallen by almost a third.

The yield on Spain�s benchmark 10-year bond rose 4 basis points to 4.27 percent, while the 2-year bond yielded a three- week high of 2.60 percent, up 18 basis point.

The extra yield that investors demand to hold Spanish debt rather than German equivalents rose 5 basis points to 158 basis points, 15 basis points less than the post-euro high of 173 basis points reached on May 7. The average spread over the last decade is 23 basis points.

Japan�s Industrial Output Advances Less Than Forecast

Bloomberg reports Japan�s Industrial Output Advances Less Than Forecast.

Japan�s industrial production increased less than economists forecast in April, the latest sign that the economic recovery may be losing momentum.

Factoryoutput rose 1.3 percent from March, when it gained 1.2 percent, the Trade Ministry said in Tokyo today. The median estimate of 26 economists surveyed by Bloomberg News was for a 2.5 percent increase.

�The report reinforces the view that the pace of recovery is going to get slower this quarter,� said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. �Even so, we�re likely to see production stay on a rising trend because of the recovery in exports, particularly from Asia.�

The expansion may lose steam as the effects of stimulus spending taken worldwide last year wear off, according to Naoki Tsuchiyama, market economist at Mizuho Securities Co. in Tokyo. Government expenditure cuts in Europe may damp sales of Japanese cars and electronic goods over time, he added.

�Production will remain in a recovery trend but its pace of growth may slow in the months ahead,� Tsuchiyama said. �The effects of the governments� stimulus will wane, and we can�t ignore the European sovereign problem as a downside risk to the global economy.�

It will be interesting to see the reaction of Trichet when Spanish government yields take out the May 7th high. This crisis in sovereign debt is far from over. In fact the crisis has barely begun.

These problems cannot help but slow the world economy, much more than the cheerleaders think.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

BP Robots to Cut Damaged Pipe; Oil Dispersant Maker Says 'We Have Nothing to Hide'; Oil D�j� Vu

With Top Kill officially dead, BP has moved on to an option involving underwater robots to cut the pipe, followed by another funneling scheme.

Please consider BP�s Robots to Begin Next Attempt to Curb Record Oil Spill

BP Plc will use undersea robots to begin cutting damaged pipe from its leaking oil well off Louisiana as early as today, risking temporarily increasing the flow as it makes another attempt to end the largest oil spill in U.S. history.

�BP and the government have no choice but to proceed,� Jason Kenney, an Edinburgh-based analyst for ING Commercial Banking, who rates the shares a �buy� and owns none, said yesterday in an interview. �This is war. As in all wars, it rarely goes smooth.�

Using remote-controlled vehicles at the mile-deep well, BP plans to shear away most of the damaged pipe that once rose from the well to the Deepwater Horizon. Then it will make a more precise cut with a diamond-toothed band saw, BP Managing Director Robert Dudley said in television interviews yesterday.

That will make a clean junction for a gasket-lined cap intended to catch most of the oil and route it to the surface through a pipe, Dudley said.

The new funnel may enable BP to capture as much as 90 percent of the oil and gas escaping from the well, Dudley said on �Face the Nation.� BP is also preparing a second blowout preventer that may be bolted on in place of the cap and used to try again to stop all leakage, he said.

The spill may cost BP $22 billion should it continue through early August, when the company expects to plug the leak with one of the relief wells, Kenney, the ING analyst, said yesterday. That compared with his estimate of $5.3 billion had the latest attempt to plug the well worked.

BP fell 5 percent to 494.8 pence in London trading on May 28 and has lost 25 percent of its market value since the blast.

Well Could Leak Until August

An aide to Obama says US Spill could last until August.

Oil could gush into the Gulf of Mexico from the BP BP.L. rig until August and the U.S. government is "preparing for the worst," Carol Browner, President Barack Obama's top adviser on energy and climate change, said on Sunday.

Speaking on the CBS TV show "Face The Nation," Browner said: "There could be oil coming up till August when the relief wells are done."

She said BP's latest effort to try to capture and contain oil would not provide a permanent solution or prevent some oil escaping into the sea even if the maneuver succeeded.

"We are prepared for the worst. We have been prepared from the beginning," she added.

Nothing to Hide

The Oil Dispersant Maker Says 'We Have Nothing to Hide'

The manufacturer of the oil-dispersing chemicals being used by BP PLC in the Gulf of Mexico said today that injecting the dispersant on a still-gushing wellhead was unprecedented and should be carried out with ample testing.

"That's a new approach," said Erik Fyrwald, CEO of Nalco, whose dispersants are marketed under the name Corexit. "Our belief is, because it is a new approach, it needs to be done with a lot of testing to make sure there are no unfavorable impacts, and we encourage that."

Scientists have compared BP's heavy use of dispersants in the Gulf to a massive chemistry and biology experiment, saying it is an exercise in environmental trade-offs. The chemicals break up oil that would otherwise float on the surface into tiny droplets that can sink and be consumed by fish, bacteria and microorganisms.

The consensus is that the 870,000 gallons of Corexit that have been either sprayed on the Gulf's surface or injected underwater at the broken wellhead has likely spared beaches and wetlands from an even worse oil slick, while contributing to the formation of massive, difficult-to-track oil plumes underwater that could have long-term ecological consequences.

Fyrwald said Nalco has disclosed the complete chemical constituents of Corexit to EPA to assist in the government's evaluation and testing of the otherwise proprietary formula.

"We've given the exact formulation," he said. "We have nothing to hide."

Hallelujah. The maker has released the exact formula. What good does it do to know the formula when no one knows if use of dispersants is the right thing to do.

The problem is everyone is guessing.

If they are supposed to be testing Corexit as the CEO suggested, then they sure as hell should not be using 870,000 gallons of it as the test.

D�j� Vu



If you have a sneaking suspicion we have been through this before, with the exact same efforts to contain the spill and the exact same failures to do so, then you are correct.

Please play the above video. It's D�j� Vu all over again. Technology has gotten a lot better at drilling deeper and deeper wells. Technology to cleanup spills has made no gains.

Is that a sign the penalties for major screwups are not big enough? I think so.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Sunday Funnies 2010-05-30 Public Union Benefits; Title Loans - No Title Required

The above in response to Padded Pensions and What to do About Them

It�s what the system promised, said Mr. Tassone, now 47, adding that he did nothing wrong by adding lots of overtime to his base pay shortly before retiring. �I don�t understand how the working guy that held up their end of the bargain became the problem,� he said.

Title Loans, No Title Required



The above image from "Glenn G" who writes "I was driving through SC a couple of weeks ago and saw this sign. Pretty funny."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Hosed in Canada; Housing Crash is a Given

Inquiring mind may be interested in an email from Robert Clegg at the University of Calgary regarding housing prices in Canada vs. disposable income.

Robert writes ...

Mish, I love your blog and read it daily. I came across this article with respect to Canada's housing bubble. The articles states, " Canadians are spending more and more of their disposable income on housing. In Toronto, 44% of disposable income goes to housing and in Vancouver the figure is a whopping 68%. The trend is likely not sustainable."

Imagine, 68% of your disposable income being spent on housing costs with the remaining disposable income likely being spent on their favorite Top Ramen and KD dinners. This is insane as well as unsustainable. It's funny that many Canadians seems to think that the 49th parallel has magically created immunity from a housing bust that in their minds is exclusive to the United States. I can't tell you how many times friends and acquaintances say that Canada's banks are sound and there was no sub-prime lending and it just can't happen here. I'm quick to remind them that the loss of one income from a two income family will in essence convert a low credit risk to a poor credit risk akin to that of a sub-prime borrower real fast. Now, multiply this my hundreds of thousands if not millions of borrows and we too have a major problem in Canada no different from that of the US. Wishful thinking really. The proof's in the pudding and this puddings going to bring a dose of reality to those that are living in fantasy land, way beyond their means and who apparently have missed the global financial crisis that's been gaining traction and intensity since August 2007.

We're not only "Hosers" in Canada but we're royally Hosed as well!!

Robert Clegg, JD, LL.M
Ombudsman, University of Calgary
Calgary, Alberta

Is Canada�s housing bubble about to burst?

Here is the article to which Robert Clegg referred: Is Canada�s housing bubble about to burst?

Canadians are spending more and more of their disposable income on housing. In Toronto, 44% of disposable income goes to housing and in Vancouver the figure is a whopping 68%. The trend is likely not sustainable.

The federal government imposed tighter mortgage restrictions months ago specifically to avoid causing a housing bubble. That might have helped, but keeping interest rates at historic lows for so long has flooded the market with buyers anyway. The Bank of Canada is expected to raise interest rates on June 1st, which should do something to reduce buyer demand in the housing market.

But whether that will facilitate the expected drop in average home prices while avoiding a steep decline in the short term, still remains to be seen.

As Robert Clegg suggests, recent Canadian property buyers will indeed be hosed.

A Canadian housing crash is a given. The only thing that remains to be seen is how deep the crash is.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

BP Abandons Top Kill; More Images; Failed Politics and Policies; Can BP do Anything Right?

It's back to the drawing board. BP has given up with the idea of sinking mud, golf balls, tires, and other junk into the well to plug it. Top Kill is officially dead.

Bloomberg reports BP Abandons �Top Kill� Plan That Failed to Cap Leak.

BP Plc said it will switch to a new strategy to cap a leaking oil well in the Gulf of Mexico after a three-day effort to stop the flow with a blast of pressurized fluids was unsuccessful.

At a press conference today, Doug Suttles, the BP executive in charge of the spill response, said the top kill strategy didn�t work. BP will now try a containment device known as a lower-marine riser package cap, Suttles said.

Oil from the spill may have spread underwater for 22 miles toward Mobile, Alabama, researchers aboard a University of South Florida vessel reported May 27. Initial tests aboard the Weatherbird II show the highest concentrations of �dissolved hydrocarbons� were 400 meters (1,312 feet) below the surface.

BP plans to install the new blowout preventer on top of the existing one, Suttles said. BP will then try to use the valves on the new blowout preventer to stop the flow.

�We�re still looking at a month before we get this thing killed,� Les Ply, a retired mud engineering consultant for the oil industry, said today in a telephone interview. �I think we�re looking at a week to 10 days to get this riser and cap in place.�

The new method, if successful, would stop the leak long enough for a so-called relief well to be drilled nearby and provide a permanent seal.

Crews are ahead of schedule in drilling a relief well and are about halfway to the end, with around 6,000 feet left to go, Suttles said. Completion of the well is still expected by about early August, he said.

Drilling on the second of two relief wells, which was temporarily suspended so that its blowout preventer could be available if the top kill failed, is expected to resume �shortly,� David Nicholas, a spokesman for BP, said today in a telephone interview.

BP�s costs from the spill rose to $940 million, the London- based company, the largest producer of oil and gas from the Gulf of Mexico, said today. BP leased the rig destroyed in the explosion, the Deepwater Horizon, from Geneva-based Transocean Ltd., the world�s largest deep-water driller.

A Week Later

Here is a video from biologist Marc Gauthier on the oil spill.



Clips from the Above Video







BP's 'Systemic Failure' Endangers Gulf Cleanup Workers

Inquiring minds are reading BP 'systemic failure' endangers Gulf cleanup workers

Federal regulators complained in a scathing internal memo about "significant deficiencies" in BP's handling of the safety of oil spill workers and asked the Coast Guard to help pressure the company to address a litany of concerns.

The memo, written by a Labor Department official earlier this week and obtained by McClatchy , reveals the Obama administration's growing concerns about potential health and safety problems posed by the oil spill and its inability to force BP to respond to them.

BP said it's deployed 22,000 workers to combat the spill, which experts now estimate has spewed 37 million gallons of crude oil into the Gulf of Mexico . At this point, much of the oil remains offshore.

David Michaels , the assistant secretary of labor for occupational safety and health who wrote the memo, raised the concerns on Tuesday, the day before seven oil spill workers on boats off the coast of Louisiana were hospitalized after they experienced nausea, dizziness and headaches.

Late Friday, the disaster response team sent four more workers to the hospital by helicopter, including two with chest pains.

In his memo to Coast Guard Adm. Thad Allen , Michaels said his agency has witnessed numerous problems at several work sites and staging areas through the Gulf Coast region.

"The organizational systems that BP currently has in place, particularly those related to worker safety and health training, protective equipment, and site monitoring, are not adequate for the current situation or the projected increase in clean-up operations," Michaels said in the memo.

"I want to stress that these are not isolated problems," he continued. "They appear to be indicative of a general systemic failure on BP's part, to ensure the safety and health of those responding to this disaster."

Political Stupidity

Please consider BP bused in 100s of temp workers for Obama visit, state official says

Jefferson Parish Councilman Chris Roberts, whose district encompasses Grand Isle, told Yahoo! News that BP bused in "hundreds" of temporary workers to clean up local beaches. And as soon as the president was en route back to Washington, the workers were clearing out of Grand Isle too, Roberts said.

"The level of cleanup and cooperation we've gotten from BP in the past is in no way consistent to the effort shown on the island today," Roberts said by telephone. "As soon as the president left, they were immediately put back on the buses and sent home."

Of all the dumb stunts by BP, that has to be among the stupidest. How could anyone at BP think this stunt would not be immediately caught and blasted? It is one mistake after another after another for BP.

We still do not know exactly how much oil is leaking. What we do know is BP has lied every step of the way about every facet of this disaster while underestimating the damage and overestimating when the problem would be fixed.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Can Chris Christie Fix New Jersey? Christie Confronts Union Parasite

Real Clear Politics is asking Can Chris Christie Fix New Jersey?

At a New Jersey town meeting, Gov. Chris Christie, the newest YouTube star for the limited government set, was reproached by an unhappy teacher. The governor, facing a budget shortfall of $11 billion, has proposed, among other economies, a one-year salary freeze for New Jersey teachers. Her voice raised in anger (that's a normal speaking voice in my home state), Rita Wilson protested that she should be paid $83,000, the only reasonable compensation in light of her "education and experience." Christie's reply got an ovation: "Well, you know what? Then you don't have to do it."

Meet the newest conservative hero: The Trenton Truth-Teller!

First, the problem: How can smaller-government Republicans win elections when more and more Americans are receiving government benefits while fewer and fewer are paying taxes? In 2010, 47 percent of Americans paid no income taxes at all. Among those who do pay taxes, most pay comparatively little.

But as Christie is demonstrating, voters are open to a new fairness argument. Whereas Barack Obama and his party invoke "fairness" as a license to take property from productive people and transfer it to the unproductive, Christie is inviting voters to consider the unfairness of our current arrangement in which government employees enjoy better salaries and benefits than private-sector employees.

Christie spelled it out:

A retired teacher paid $62,000 towards her pension and nothing -- yes, nothing -- for full family medical, dental, and vision coverage over her entire career. What will we pay her? $1.4 million in pension benefits and another $215,000 in health care benefit premiums over her lifetime. Is it 'fair' for all of us and our children to have to pay for this excess? (Is it) fair to have New Jersey taxpayers foot the bill for 100 percent of the health insurance costs of teachers and their families from the day they are hired until the day they die? Is it fair that teachers have a better, richer health plan than even state workers and pay absolutely nothing for it?

Christie's proposed economies -- in addition to the one-year salary freeze, he wants teachers and administrators to contribute 1.5 percent of their salaries to the cost of their medical coverage -- have provoked thousands of teachers to take to the streets, Athens style. They've started a Facebook page that excoriates the governor to the delight of its 68,000 fans. And the NJEA has spent $1.8 million on an anti-Christie ad campaign since January.

Still, when the question was submitted to voters in April, 60 percent backed Christie's reforms. His popularity ratings are in dispute (Rasmussen pegs him at 53 percent approval, whereas a Fairleigh Dickenson University poll has him at 43 percent), but he is gaining traction in a state with a 700,000 Democratic registration advantage.

This is one to watch.

There is more in the article. Inquiring minds will give it a look.
Cheers to Chris Christie for laying it on the line.

Governor Chris Christie Slams Teacher



Partial Transcript

Chris Christie: "We have put forward a constitutional amendment that I am urging the legislature be put on the ballot for you for you to vote on, for you to decide, this November. Do you want a constitutional cap of no more then 2.5% a year. If you want it, I am prepared to give it to you."

During a question and answer session teacher Rita Wilson proposed $3 per pupil which she says adds up to $83,000 per year.

Rita Wilson: "You are not compensating me for my education and you are not compensating me for my experience."

Chris Christie: "Well you know what, then you do not have to do it". [huge applause]

Rita Wilson: "Teachers do it because they love it"

Chris Christie: "Teachers go into it knowing what the pay scale is." [applause]

Quick Check of the Facts

Inquiring minds just might be wondering what Rita Wilson makes and are reading the Rutherford Schools Board Minutes.

24. BE IT RESOLVED BY THE RUTHERFORD BOARD OF EDUCATION to approve the following faculty salaries and locations effective 9/1/09 through 6/30/10:

Page 10. Rita O'Neill-Wilson: $86,389

Rita Wilson makes $86,389 "for the love of it" yet bitches about being undercompensated. Ironically, she asks for $3 per pupil which would pay her less.

Bear in mind that teachers get summers off plus enormous benefits. Medical benefits alone may be worth as much as $20,000 and pension benefits another $20,000 or so on top of that.

Far from being underpaid, she is way overpaid vs. what she would get in the private sector. The key, as governor Christie puts it "If you don't like it, do something else."

Rita Wilson and her ilk have the gall to oppose property tax caps of 2.5% just so she and her union parasite friends can unjustifiably make ever increasing sums of money while bankrupting everyone else in the state.

I commend you Rita Wilson for proving what a collective bunch of parasites your teachers' union is. Were it not for your union's thuggery, you just might see a 25-50% haircut in what you are making.

Public unions need to be abolished. It is the only way to get rid of the union termites.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Simmons Says Obama Should Detonate Nukes to Seal Oil Leak; Obama Suspends Deep Water Drilling Programs; Scientists Locate Another Vast Oil Plume

News in the gulf regarding BP's oil leak is grim. The "Top Kill" plan has reportedly failed although BP says it will continue efforts.

Worse yet, Matt Simmons says "Top Kill" is a sideshow, misses the big problem, and we might need nukes to seal the leak.

Let's take a look at those stories starting with BP Engineers Making Little Headway on Leaking Well.

BP engineers struggled Friday to plug a gushing oil well a mile under the sea, but as of late in the day they had made little headway in stemming the flow.

Amid mixed messages about problems and progress, the effort � called a �top kill� � continued for a third day, with engineers describing a painstaking process of trying to plug the hole, using different weights of mud and sizes of debris like golf balls and tires, and then watching and waiting. They cannot use brute force because they risk making the leak worse if they damage the pipes leading down to the well.

Despite an apparent lack of progress, officials said they would continue with the process for another 48 hours, into Sunday, before giving up and considering other options, including another containment dome to try to capture the oil.

Deep Water Drilling Grinds to Halt

Bloomberg reports Oil Industry Faces Its �1,000-Year Flood� as Drilling Is Halted

�The spill is like the 1,000-year flood: it�s the worst- case scenario,� said Brian Youngberg, an analyst with Edward Jones in St. Louis. �It�s hard to prepare for those extreme situations like that.�

Obama dropped plans to open waters off the coast of Virginia to drilling, canceled a lease sale in the Gulf, and suspended the permitting process for Royal Dutch Shell Plc�s planned wells off of Arctic Alaska. He said new safety rules will be imposed on offshore drilling.

U.S. oil output may be cut by 160,000 barrels a day next year as a result of the ban, according to Deutsche Bank AG. A one-year delay to deep-water projects would reduce global supplies by 500,000 barrels a day between 2013 and 2017, Sanford C. Bernstein said.

Shell has five wells affected by Obama�s call to halt drilling at 33 exploratory locations. Eni SpA, based in Rome, and Houston-based Marathon Oil Corp. and Anadarko Petroleum Corp. each are shown as having three, according to an official with the Minerals Management Service who asked not to be identified discussing the specific companies.

�The impact is most likely going to be a significant decrease in activity, and we just don�t know if it�s going to happen this week, next week, or over the course of a month,� said Ian Macpherson, a vice president at Simmons & Co. in London. �It looks like deep-water drilling is going to essentially grind to a halt.�

Scientist Locates Another Vast Oil Plume

Please consider La. scientist locates another vast oil plume in the gulf

A day after scientists reported finding a huge "plume" of oil extending miles east of the leaking BP well, on Friday a Louisiana scientist said his crew had located another vast plume of oily globs, miles in the opposite direction.

James H. Cowan Jr., a professor at Louisiana State University, said his crew on Wednesday found a plume of oil in a section of the gulf 75 miles northwest of the source of the leak.

Cowan said that his crew sent a remotely controlled submarine into the water, and found it full of oily globules, from the size of a thumbnail to the size of a golf ball. Unlike the plume found east of the leak -- in which the oil was so dissolved that contaminated water appeared clear -- Cowan said the oil at this site was so thick that it covered the lights on the submarine.

"It almost looks like big wet snowflakes, but they're brown and black and oily," Cowan said. The submarine returned to the surface entirely black, he said.

Cowan said that the submarine traveled about 400 feet down, close to the sea floor, and found oil all the way down. Trying to find the edges of the plume, he said the submarine traveled miles from side to side.

"We really never found either end of it," he said.

This discovery seems to confirm the fears of some scientists that -- because of the depth of the leak and the heavy use of chemical "dispersants" -- this spill was behaving differently than others. Instead of floating on top of the water, it may be moving beneath it.

Simmons Calls For Military to Nuke Oil Leak

Inquiring minds are reading Simmons Calls For Obama to Take Over BP; Military To Nuke Oil Leak

Today Matt Simmons, one of the largest investment bankers in the energy industry appeared on Bloomberg. The chairman of Simmons & Co. INTL went on to explain that there is much more to the oil leak than the news has been reporting. Last Sunday, NOAA confirmed reports of a second fissure about 5-7 miles from the original. This new fissure appears to be releasing a plume the size of Delaware and Maryland combined! He went on to state that �the plume from the riser is minor thing� the best estimate is about 120,000 barrels of oil per day�.

Simmons is quoted as saying, �Obama could remove BP today� tell BP it is time to leave�. Some questions were also brought up that pertained to a nuclear device and how the military could lower one 18,000 feet into the well bore.

Simmons went on to say � Such techniques have been used by the Russians on several different occasions�.

Matt Simmons Video on the Nuke Option



Mat Simmons "... From all of the best scientists who have thought about this in the past few days, probably the only thing we can do is create a weapons system and send it down 18,000 feet, detonate it and hopefully case in the oil."

That we would even have discussions about setting off nuclear explosions in "hope" they would accomplish something is certainly not encouraging to say the least.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Atlanta Fed asks: How "Discouraged" are Small Businesses?

The Federal Reserve Bank of Atlanta Asks How "Discouraged" are Small Businesses? Here are some Insights from an Atlanta Fed small business lending survey.

Roughly half of U.S. workers are employed at firms with fewer than 500 employees, and about 90 percent of U.S. firms have fewer than 20 employees. While estimates vary, small businesses are also credited with creating the lion's share of net new jobs. Small businesses are, in total, a big deal.

Many people have noted the decline in small business lending during the recession, and some have suggested proposals to give incentives to banks to increase their small business portfolios. But is a lack of willingness to lend to small businesses really what's behind the decline in small business lending? Or is it the lack of creditworthy demand resulting from the effects of the recession and housing market distress?

We at the Federal Reserve Bank of Atlanta have also noted the paucity of data in this area and have begun a series of small business credit surveys. Leveraging the contacts in our Regional Economic Information Network (REIN), we polled 311 small businesses in the states of the Sixth District (Alabama, Florida, Georgia, Louisiana, Mississippi and Tennessee) on their credit experiences and future plans. While the survey is not a stratified random sample and so should not be viewed as a statistical representation of small business firms in the Sixth District, we believe the results are informative.

Indeed, the results of our April 2010 survey suggest that demand-side factors may be the driving force behind lower levels of small business credit. To be sure, when asked about the recent obstacles to accessing credit, some firms (34 firms, or 11 percent of our sample) cited banks' unwillingness to lend, but many more firms cited factors that may reflect low credit quality on the part of prospective borrowers. For example, 32 percent of firms cited a decline in sales over the past two years as an obstacle, 19 percent cited a high level of outstanding business or personal debt, 10 percent cited a less than stellar credit score, and 112 firms (32 percent) report no recent obstacles to credit.

Perhaps not surprisingly, outside of the troubled construction and real estate industries, close to half the firms polled (46 percent) do not believe there are any obstacles while only 9 percent report unwillingness on the part of banks.

Banks Want To Lend

The report should bury the idea that banks do not want to lend.

Outside of the overbloated construction industry, businesses simply do not want to expand. With rising health care costs (Please see Double Digit Health Insurance Hikes Crush Small Businesses), and with excess capacity and tepid consumer spending why should businesses expand.

Now let's take a closer look at the Atlanta Fed Small Business Credit Report.

Reasons for Not Seeking Credit



Excluding construction and real estate only 5% of businesses thought credit terms were unfavorable, and only 13% thought lenders would deny the request. Bear in mind the numbers add up to greater than 100% because the survey allowed multiple responses.

28% said sales did not warrant expansion, and 26% said they simply did not need credit. A whopping 37% said they had sufficient cash and another 34% said existing credit lines were sufficient. There may not be much overlap in those last two categories.

Extent to Which Financing Needs Were Met: Applications



From the report: A total of 122 applications (40%) were denied, but only 22 of the 117 firms that sought credit were denied on all applications they attempted. Thus, 81% of firms seeking credit received credit at some level.

Obstacles to Accessing Credit



Excluding construction and real estate, of those denied credit, only 9% said the "bank was unwilling to lend". Across all industries the total was only 11%.

The moral of the story is as I have stated many times over the past two years. Banks are willing to lend but credit-worthy businesses do not want to borrow. Indeed businesses in general do not want to borrow.

Of the 9% of business owners who blame the banks, how many of those do you think need to look in a mirror and admit a failing business? I suspect all of them.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

ECRI Leading Indicators Dip Again; Is a Double-Dip Recession Coming?

Inquiring minds are investigating leading indicators of the Economic Cycle Research Institute (ECRI). Here are a couple of charts.

Weekly Indexes



Monthly Indicators



Recent Trend in WLI


Please click on the first link for WLI spreadsheet data all the way back to 1967 and other interesting charts.

My friend "BC" writes ...

The WLI is again below the 126 level where it was all the way back to spring '98, the point at which the growth of industrial production and private employment peaked.

The 126 level is below zero on a post-'00 trend rate basis as occurred when it dipped below zero in Apr.-Sept. '00 and July '08.

If the trend rate since Q3-Q4 '09 persists, the WLI growth rate could fall below zero and reach the negative 5-6% by as soon as July-Oct. This is an area consistent with ECRI "forecasting" a recession.

At present, the ECRI gang are talking just deceleration of "growth". But I suspect that by no later than mid-summer they will shift to urging more Keynesian stimulus to "avoid a double-dip recession" when a deceleration to 0% and imminent contraction will likely already be underway.

Then, in hindsight, the ECRI will "forecast" a recession after it had already started, attributing the "unexpected" contraction to "policy missteps", "exogenous shocks", or some such silliness.

Makeup of the WLI

I do not have the exact percentage makeup of the WLI but reportedly it includes the Mortgage Bankers Association's home purchase index, money supply, stock prices, initial jobless claims, corporate yield spreads (inverted), and corporate bond quality spreads.

It is debatable if any of those are signaling anything good. In fact, I suggest none of them are.

Moreover, it is also debatable if the stock market is a leading indicator. I suggest the stock market is a coincident indicator (if indeed it indicates anything at all).

The treasury yield curve is a leading indicator and the recent bullish flattening (long dated yields dropping) is certainly not a signal of economic recovery. Housing starts are also a leading indicator, and while "recovering" percentagewise, in absolute terms the number of housing starts is pathetic.

Housing Starts



Yield Curve March 2008 Through May 2010



click on chart for sharper image

Note: The above yield curve is from May 25. Yields have pushed back up slightly with the 10-year yield now at 3.29.

ECRI Track Record

Inquiring minds might be interested in A Look at ECRI's Recession Predicting Track Record.

The ECRI did not predict the last recession until it had already started and I highly doubt they predict the next one either. A double-dip recession is on the way, assuming of course you believe we still aren't in one.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Double Digit Health Insurance Hikes Crush Small Businesses

Small businesses across the country are getting hammered by rising medical insurance costs. Blue Shield of California is jacking up rates as much as 76%.

Is this what president Obama meant when he said "Change You Can Believe In"?

The LA Times reports Health insurance rate hikes hitting California small businesses could hurt state's economic recovery.

Small businesses in California are being hit this year with double-digit hikes in health insurance costs that could hurt the state's economic recovery as companies curtail plans for hiring and expansion to pay their insurance bills.

Five major insurers in California's small-business market are raising rates 12% to 23% for firms with fewer than 50 employees, according to a survey by The Times.

Similar increases are being felt by many small businesses across the nation, including those in Texas, Ohio and Florida � mainly the result of escalating costs for medical care and pharmaceuticals, insurers say.

In California, some small businesses say they are stunned by their latest insurance bills. Longtime customers of Blue Shield of California, for instance, are facing rate hikes as high as 76% after the insurer lost money on a handful of plans.

"We don't have that money," said Ann Terranova, a San Francisco financial planner who is dropping Blue Shield for herself and two employees after learning that their annual premium would jump to more than $19,000 a year from $11,000.

Financial pressures are also squeezing Tessier Cabinet Co., a 59-year-old family business in Montclair. Its president is reluctant to hire because of weak demand for his goods amid a 14% rate hike from Kaiser Permanente. "I'm ready to hang it up," Dan Tessier said.

Small firms nationwide are struggling with the problem as they worry about what the effect of the new national healthcare law. It will impose billions of dollars in taxes on insurance companies and require mid-sized firms to provide insurance for workers or pay fines.

"They are very concerned that their costs aren't going to go down. They're just going to go up," said Stephanie Cathcart, a spokeswoman for the National Federation of Independent Business in Washington. "They're going to be paying new taxes, new fees. It's kind of a double whammy on them."

Small businesses say 2010 is shaping up to be their most expensive year yet, leaving them with few good choices. They say they can pass charges along to employees, reduce benefits, cancel insurance programs or raise the price of goods � an option few are willing to entertain because of competitive pressures.

Blue Shield, for example, miscalculated the cost for three plans that pay all medical expenses once customers meet thresholds for out-of-pocket expenses. The San Francisco insurer is now raising premiums as much as 76% for some small businesses.

"It turns out that people used a lot more medical care than we had anticipated," said Tom Epstein, Blue Shield's vice president of public affairs. "We need to increase the rates to cover the medical costs. We can't lose money on these products."

Many small firms say they feel a duty to provide health insurance, or see it as a necessary cost to attract qualified job candidates. Either way, they predict that a continued rise in their healthcare bills will dampen their prospects for recovery.

"Our margins will dwindle to nothing," said Bill Thomas, chief executive of U.S. Technical, an engineering firm in Fullerton. "It's the beginning of the end."

There are lots more examples of rising costs in the article.

Sadly, the bill rammed through Congress does nothing about containing costs. All it did was force more people into the system and put more burden on small businesses and individuals to do so.

The health insurance bill has an alleged cost of a $trillion. It will be higher. No government program ever costs less than anticipated. Moreover, one needs to factor in unseen costs, such as driving small businesses out of business.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Antioch California Considers Bankruptcy; Former LA Mayor Predicts Bankruptcy for LA

Bankruptcy talk is heating up in California with the city of Antioch on the front burner. Please consider Bankruptcy talk spreads among California municipal officials.

Two years after Vallejo, California, filed for bankruptcy protection, officials in nearby Antioch are also tossing around the 'B' word.

Antioch's leaders earlier this month said bankruptcy could be an option for the cash-strapped city of roughly 100,000 on the eastern fringe of the San Francisco Bay area.

"We just want to alert people to the possibility," Antioch Mayor Pro Tem Mary Helen Rocha said.

Orange County Treasurer Chriss Street would not be surprised if more local governments across the Golden State sound a similar alarm.

Street expects more talk of municipal bankruptcy across California because local government finances are in such dire shape -- a situation underscored on Wednesday when a top finance officer for Sacramento County projected a worse-than-expected shortfall for the county of $181 million, which could force more than 1,000 layoffs from the county's payroll.

Marc Levinson, a lawyer with Orrick, Herrington & Sutcliffe LLP who is representing Vallejo in its bankruptcy proceeding, agrees that California's hard times and lean local budgets are forcing local leaders to weigh bankruptcy.

"It's a topic on everyone's lips because cities and counties and local governments are hurting," Levinson said.

Like Vallejo, Los Angeles is suffering from weak revenue at the same time the cost of its pensions and other retirement benefits are rising. Former Mayor Richard Riordan said those factors put the government of the second largest U.S. city on track to declare bankruptcy between now and 2014.

Riordan sees bankruptcy as a necessary tactic for squeezing concessions from the city's public employee unions. It could also pave the way for 401(k) retirement accounts for new city workers instead of defined pension benefit plans with escalating costs, he said.

"The threat of bankruptcy is really the only way you're going to get them to make major changes," Riordan recently told Reuters.

Talk of municipal bankruptcy has not escaped California's politically powerful public employee unions. A number of them are pressing the legislature to pass a bill that would require local governments to get the approval of a state board before filing for bankruptcy. Since the board could be stacked with union-friendly appointees, bankruptcy pleas could be rejected or delayed.

"It's a horrible bill," Levinson said. "If you don't have the bankruptcy outlet, what do you do? If you can't pay your bills what do you do?"

Major cities declaring bankruptcy is a given. The only questions are "What city is first and how long will it take?" Miami is one possible choice given that a Miami Commissioner says Bankruptcy is Miami's Best Hope.

Bankruptcy is exactly what public unions deserve. It's too bad the politicians that granted those ridiculous benefits in the first place will not receive the same fate.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

War is Making You Poor - Sign the Petition; Victory for Education in Texas - Automatic PAC Contributions from Unions Ruled Illegal

Representative Alan Grayson says The War is Making You Poor

Next year's budget allocates $159,000,000,000 to "contingency operations," to perpetuate the occupations of Afghanistan and Iraq. That�s enough money to eliminate federal income taxes for the first $35,000 of every American's income each year, and beyond that, leave over $15 billion that would cut the deficit.

Grayson says ...

Support the 'War is Making You Poor' Act. This bill would eliminate the separate funding for the occupations of Iraq and Afghanistan, and eliminate federal income taxes for everyone's first $35,000 of income (or $70,000 for couples) each year. And it would help pay down our national debt.

Please support the bill. Click on the above link to sign the petition.

PAC Contributions Barred in Texas

Here is some good news in Texas regarding insidious PAC campaign contributions from unions. Please consider Big Victory for Educational Liberty in Texas!

The power of the teachers unions in Texas is directed at maintaining the status quo in school funding that is so hurtful to schoolchildren and teachers. Parental choice in education through charter schools, voucher scholarships, and tuition tax credits will solve these problems, but the teachers unions fight against the expansion of these reforms for the selfish reason that they will lose financial and political power. The unions use their political power against both Democrats and Republicans with the goal of maintaining and enhancing their power.

This is the story behind the Texas Attorney General�s (AG) Opinion (GA-0774) prohibiting school districts from withholding PAC contributions from teachers� payrolls.

This ruling means that the only way that teachers unions will be able to raise political contributions is by asking teachers to write a check (or debit their credit card). Teachers don�t like to write checks, especially when they are going to politics that they don�t agree with.

This is a step in the right direction, but only a small one. The correct goal is to get rid of public unions entirely.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

No Progress in Weekly Unemployment Claims for Five Months

Weekly claims once again hover around 450,000 with the 4-week moving average rising a bit to 456,500 for months.

Weekly Claims Report

Please consider the Unemployment Weekly Claims Report for May 22, 2010.

In the week ending May 22, the advance figure for seasonally adjusted initial claims was 460,000, a decrease of 14,000 from the previous week's revised figure of 474,000. The 4-week moving average was 456,500, an increase of 2,250 from the previous week's revised average of 454,250.

Unemployment Claims



The weekly claims numbers are volatile so it's best to focus on the trend in the 4-week moving average.

4-Week Moving Average of Initial Claims



The 4-week moving average is still near the peak results of the last two recessions. It's important to note those are raw numbers, not population adjusted. Nonetheless, the numbers do indicate broad weakness.

4-Week Moving Average of Initial Claims Since 2007



To be consistent with an economy adding jobs coming out of a recession, the number of claims needs to fall to the 400,000 level.

At some point employers will be as lean as they can get (and still stay in business). Yet, that does not mean businesses are about to go on a big hiring boom. Indeed, unless consumer spending picks up, they won't.

Since December of 2009 the 4-week moving average of weekly claims has bounced around between 440,00 and 480,000 spending most of the time near 450,000.

Progress has hugely decelerated, at best. Stalled is a better word as the following chart shows.

4-Week Moving Average of Initial Claims Since October 2009



Since mid-December 2009 improvements in weekly claim numbers has essentially stalled.

Questions on the Weekly Claims vs. the Unemployment Rate

A question keeps popping up in emails: "How can we lose 400,000+ jobs a week and yet have the unemployment rate stay flat and the monthly jobs report show gains?"

The answer is the economy is very dynamic. People change jobs all the time. Note that from 1975 forward, the number of claims was generally above 300,000 a week, yet some months the economy added well over 250,000 jobs.

Also note that the monthly published unemployment rate is from a household survey, not a survey of payroll data from businesses. That is why the monthly "establishment survey" (a sampling of actual payroll data) is not always in alignment with changes in the unemployment rate. At economic turns the discrepancy can be wide.

Barring short term census effects, it may be quite some time before we weekly claims drop to 300,000 or net hiring exceeds +250,000.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Miami Commissioner Says Bankruptcy is City's Best Hope; Chris Christie Says New Jersey Careens Towards Becoming Greece

I keep waiting for some large city to take initiative and declare bankruptcy to escape the onerous burden of public pensions. Perhaps Miami is that city.

NBC Miami reports Miami Budget Begging for Bankruptcy

Please click on the above link to see a very interesting video. The video is not embeddable.

Partial Transcript

The city of Miami is in such financial dire straits that commissioner Marc Sarnoff is using the "B" word, bankruptcy.

"We are not the only city, municipality to be going through this. It looks like Los Angeles sometime next week or the week after will be going bankrupt. It looks like there will be 30 more cities following suit."

Increases in public worker salaries is one of the main reasons why the budget is so tight. The average salary for a Miami city employee is $76,000. The average salary for a Miami city resident is $29,000.

Employee pensions are choking the budget too. In 2000, pension payouts cost taxpayers $16 million. In 2009 that number spiked up to $70 million.

Should the city go into bankruptcy, the commissioners and their politics would no longer be in charge of city finances, the judge would be.

[Sarnoff] "You no longer have 5 people making political solutions. You now have one person who is looking after the best interest of the taxpayer of the city of Miami, without any politics getting into his or her way."

The Judge could order union contracts be renegotiated. He or she could decide what creditors get paid or not get paid.

....

Commissioner Sarnoff offers 3 options to avoid bankruptcy.

1. Renegotiate those union contracts
2. Layoff about 800 city workers
3. Raise your property taxes

In this economic climate that last option is not likely at all

.....

I see no indication Los Angeles is about to declare bankruptcy anytime soon as Sarnoff suggests. However, it is perfectly clear that Los Angeles is indeed in pathetic shape and bankruptcy is the best option.

The same applies to Houston and many other large cities as well. I look forward to the day one of these big cities finally tells their public unions where to go.

All it takes is one big city to start the ball rolling.

New Jersey Careening `Toward Becoming Greece' as Costs Rise

Inquiring minds are reading New Jersey Careening `Toward Becoming Greece' as Costs Rise, Christie Says

New Jersey Governor Chris Christie said the state is �careening our way toward becoming Greece� and can�t afford the cost of benefits and pensions for current workers.

The governor, speaking today to members of the Manhattan Institute, said his state must reduce its tax burden and control government spending. He has proposed a constitutional amendment to cap growth in property taxes, the main source of funding for schools and towns, at 2.5 percent a year.

�Higher taxes are not going to solve the problem,� said Christie, a Republican who took office Jan. 19. �We�ve got to change the course.�

New Jersey, like Greece, has a high proportion of public workers who have been entitled to benefits such as free health insurance that outstrip taxpayers� ability to pay for them, Christie said. In the past decade the state added 11,000 public- sector jobs as it lost more than 120,000 private positions, he said.

Politicians in New Jersey have bowed to public unions for too long, failing to cut teacher benefits and enacting civil- service laws that have tied governments� hands in trimming workforces, Christie said. Over the last decade, municipal spending has grown by 69 percent, and property taxes have climbed by 70 percent, according to the governor�s office.

The average New Jersey household paid $7,281 in property taxes last year, the highest rate in the nation, according to the state Department of Community Affairs.

Senate Budget Committee Chairman Paul Sarlo, a Democrat from Wood-Ridge, proves he is mathematically challenged and unfit for office by stating "The governor�s spending cuts may lead to property-tax increases of as much as 8 percent next year".

I salute Chris Christie. We desperately need more governors to follow his lead. I also salute commissioner Marc Sarnoff. Bankruptcy is the only option that makes any sense for Miami.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

BP Admits Crucial Mistake; Big Spat on Rig Preceded Explosion; Top Kill Underway; Workers Getting Sick; More Videos

In what is absolutely guaranteed to spawn more lawsuits BP Cites Crucial 'Mistake'

Oil giant BP PLC told congressional investigators that a decision to continue work on an oil well in the Gulf of Mexico after a test warned that something was wrong may have been a "fundamental mistake," according to a memo released by two lawmakers Tuesday.

The document describes a wide array of mistakes in the fateful final hours aboard the Deepwater Horizon�but the main revelation is that BP now says there was a clear warning sign of a "very large abnormality" in the well, but work proceeded anyway.

The rig exploded about two hours later.

According to the memo, BP identified several other mistakes aboard the rig, including possible contamination of the cement meant to seal off the well from volatile natural gas and the apparent failure to monitor the well closely for signs that gas was leaking in, the congressmen wrote in their post-meeting memo. An immense column of natural gas, erupting from the oil well, fueled the fireball that destroyed the rig.

A Transocean spokesman said in response to the memo: "A well is constructed and completed the same way a house is built�at the direction of the owner and the architect. And in this case, that's BP."

The memo sheds new light on a key test performed hours before the explosion that has been a focus of congressional investigations. BP previously told investigators that a "negative pressure" test, which checks for leaks in the well, was inconclusive at best and "not satisfactory" at worst.

But in the meeting Tuesday, BP went further, saying the results were an "indicator of a very large abnormality" but that workers�unnamed in the memo�decided by 7:55 p.m. that the test was successful after all. That may have been a "fundamental mistake," BP's investigator said in the meeting, according to the memo.

Transocean argued with BP before blast

Transocean is attempting to absolve itself from legal blame, perhaps rightfully so.

Tonight we see Big Spat on Rig Preceded Explosion

Douglas H. Brown, Transocean's chief mechanic on the Deepwater Horizon rig, said key representatives from both companies had a "skirmish" during an 11 a.m. meeting on April 20. Less than 11 hours later, the well had a blowout, an uncontrolled release of oil and gas, killing 11 workers.

Mr. Brown said Transocean's crew leaders�including the rig operator's top manager, Jimmy W. Harrell�strongly objected to a decision by BP's top representative, or "company man," over how to start removing heavy drilling fluid and replacing it with lighter seawater from a riser pipe connected to the well head. Such pipes act as conduits between the rig and the wellhead at the ocean floor, and carry drilling fluid in and out of the well.

Removing heavy drilling fluid prior to temporarily sealing up a well and abandoning it is normal, but questions have emerged about whether the crew started the process without taking other precautionary measures against gas rising into the pipe.

It wasn't clear what Mr. Harrell objected to specifically about BP's instructions, but the rig's primary driller, Dewey Revette, and tool pusher, Miles Randall Ezell, both of Transocean, also disagreed with BP, Mr. Brown said. However, BP was in charge of the operation and the BP representative prevailed, Mr. Brown said.

"The company man was basically saying, 'This is how it's gonna be,' " said Mr. Brown, who didn't recall the name of the BP representative in question.

Mr. Harrell hasn't testified and declined repeated requests for comment. Donald Vidrine, listed on Transocean's documents as BP's "company man" on April 20, couldn't be reached. Mr. Revette was among the 11 workers who were killed.

Mr. Vidrine was supposed to testify Thursday but dropped out, citing an undisclosed medical issue, according to a Coast Guard spokeswoman. Another top BP official who was scheduled to testify Thursday, Robert Kaluza, declined to do so, asserting his Fifth Amendment right against self-incrimination, the Coast Guard spokeswoman said.

BP Document Says Leak Bigger Than Previously Disclosed

In what is certainly no surprise to anyone tuning into non-mainstream media reports, BP Document Shows Leak May Be 14,000 Barrels Daily.

A BP Plc document shows the company�s well in the Gulf of Mexico may be leaking about 14,000 barrels of oil a day, more than publicly estimated, U.S. Representative Edward Markey said today.

The internal BP document from April 27 put a high estimate for the leak at 14,266 barrels a day, Markey, a Massachusetts Democrat, said today at a House Natural Resources Committee hearing. At the time, BP was saying publicly that its well was leaking 1,000 barrels a day, Markey said.

The amount of oil being spilled will help determine BP�s liability for the leak, which was triggered by an April 20 explosion aboard the Deepwater Horizon drilling rig leased by BP from Transocean Ltd. BP began its most ambitious attempt to plug the well today by pumping mud-like drilling fluid into it. Markey said he received the BP document yesterday.

�According to this BP document, the company�s low estimate of the leak on April 27 was 1,063 barrels a day,� Markey said. �It�s best guess was 5,758 barrels a day. Its high estimate was 14,266 barrels a day. So when BP was citing the 1,000 barrels a day figure to the America people on April 28, their own internal document from the day before showed that their best guess was a leak of 5,758 barrels a day and their high estimate was over 14,000 barrels a day.�

Oil spill chemicals poisoning fishermen



Riki Ott, A marine toxicologist says "at high concentrations, what we learned at Exon-Valdez is it literally fries the brain".

It's like sniffing gasoline says a worker.

A doctor cautions that a worker who does not smoke has lungs that look like a three pack a day smoker.

Slideshow on Spill

Here is 1 of 8 images on a WSJ slideshow on the spill.



Top Kill Animation



Live Feed of Top Kill

Here is a live Live Feed of Top Kill

I cannot get that to play on Firefox in Vista. It does play in an IE window on Vista.

The commentary says ...

Please be aware, this is a live stream and may freeze or be unavailable from time to time.

Throughout the extended top kill procedure � which may take up to two days to complete - very significant changes in the appearance of the flows at the seabed may be expected. These will not provide a reliable indicator of the overall progress, or success or failure, of the top kill operation as a whole. BP will report on the progress of the operation as appropriate and on its outcome when complete."

This is clearly an ecologic disaster that will take decades or more (if ever), to fix. Many think that dispersing the oil made matters worse.

What an oily, gooey, legal mess.

Addendum:

Here is a far better live site for watching what is going on. It plays on Vista no problem.



The color of the spew has changed from black to tan, this is a good sign that some of what we see is mud, not oil being blown out.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Geithner on "Sustaining the Unsustainable"; Bill Gross, Robert Mundell say Sovereign Default Likely Inevitable

Sustaining the Unsustainable

Treasury Secretary Tim Geithner had me laughing out loud over his statement yesterday in Beijing where he took part in the two-day U.S.-China Strategic and Economic Dialogue.

"European leaders face the difficult challenge of trying to restore sustainability to an unsustainable system."

Yes Tim, that challenge would indeed be "difficult", in fact, impossible by definition.

It is a contradiction in terms and thus logically impossible to suggest it is possible to "sustain the unsustainable". Geithner needs math lessons or logic lessons, most likely both.

Sovereign Default Inevitable

With Geithner focused on the impossible, others have a more practical outlook. For example, Bill Gross and Noble Prize winning economist Robert Mundell say Sovereign Default May Prove Inevitable for Nations.

Pacific Investment Management Co.�s Bill Gross said restrictive lending rates and austerity measures that slow growth may leave default as the �only way out� for some sovereign borrowers dealing with mounting debt and deficits.

�Credit and equity market vigilantes are wondering if in many cases sovereigns haven�t already gone too far and that the only way out might be via default or the more politely used phrase of �restructuring,�� Gross wrote in his June investment outlook today on the Newport Beach, California-based company�s website. �It may not be possible for a country to escape a debt crisis by reducing deficits.�

�At the now-restrictive yields of Libor plus 300-350 basis points being imposed by the EU and the IMF alike, there is no reasonable scenario which would allow Greece to �grow� its way out,� said Gross, co-chief investment officer of Pimco and manager of the world�s biggest mutual fund.

Nobel Prize-winning economist Robert Mundell said reworking debt may be �inevitable� for one or two countries that share Europe�s common currency in the next five years.

�Debt restructuring may be needed for one or two fiscally weak euro members,� he said today at a conference in Warsaw. �In five years it may be inevitable, but it doesn�t mean euro deconstruction, it just means debt restructuring.�

Geithner Pleads Bazooka Be Fired

As noted above, it is not only �difficult� it is impossible by definition to achieve the unachievable, thus extremely foolish to even attempt such a maneuver.

However, logical impossibilities did not stop Geithner's plea to fire the $1 trillion European bailout bazooka. Please consider Geithner calls for action on EU crisis plan

"It's a good program (and) has got the right elements. What markets want to see is action," Geithner said at a joint news conference in London on Wednesday with his British counterpart George Osborne.

It was the U.S. Treasury that initiated this month's G7 emergency conference calls that led to the massive rescue fund for the euro zone but there is rising concern that this may not have been enough and markets are still falling sharply.

For Europe, $1 trillion is not enough, nor would $10 trillion. There is no plan that can possibly work. But that will not stop politicians from trying. Politicians do not care about math or logic, or the fact that piling on more debt cannot possibly be the cure for a problem of too much debt with no possible way to pay it back.

White House economic adviser Christina Romer, who accompanied Geithner on his flight to London from China said "We absolutely agree on the need to reduce the deficit over time, but for a country like the U.S., there is still space and need for targeted actions."

History suggests the time will not come until the entire global economy implodes in debt that cannot and will not be paid back."

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List