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During the Congressional hearing last week of BP CEO Tony Hayward, Rep. Joey Barton publicly apologized for the $20 billion shakedown of the company. The statement created large waves throughout the media and prompted a vigorous response from both the left and the right. Liberal politicians such as Rahm Emmanuel expounded the statement, saying that finally, a member of the GOP had a slip of the tongue and showed the true colors of the party, one in the pocket of big oil lobbies.
While it is ironic that Mr. Emanuel would criticize anyone for appealing to special interests given that unions finance many of the democratic candidates' campaigns, the criticism was enough for the GOP to cut and run from their colleague, blasting him for his statements. However, if we look into the rationale for the creation of the escrow account, we can see deep flaws with the response and the financing of the recovery effort in addition to the problems in regulation.
The $20 billion escrow account was created at the pressure of White House officials. Basically, the government can write checks to whomever it could see fit without any oversight, and BP has to foot the bills without having any say whatsoever. The legality of the creation of the account is shady at best and can be downright a violation of executive power. Rep. Barton saw the escrow account as a mega- large slush fund and said what he thought out loud. The question arises: how should the government react to the oil spill and what actions should they take to make sure that this type of tragedy never happens again?
The answer might seem counter- intuitive at first. The flurry of activity against BP is a response to public opinion, who demands that the government should "do something". The government should do nothing. That's right, nothing. The administration should not interfere with the distribution of dividends. By trying to secure the money for the cleanup, they are ironically losing it, by driving the share price down and scaring off investors. Besides, many American mutual funds have significant amounts of shares, and by trying to interfere and help the Gulf cleanup, many Americans could find themselves without pensions.
The government should also not bail out BP. The reason why many companies take unnecessary risks is because of the escape hatch that is the bailout. During the hearings in Congress, it was revealed that tests that would have prevented the spill carried a cost of $150,000 and took four to eight hours to complete. If BP had to foot the bill of the cleanup all by themselves and would not get a cent in help, other companies would enforce safety standards purely because of the cost benefit analysis. Effective government regulation depends upon strict penalties for the actions committed, and not upon prevention, which creates the possibility of corruption and rampant bureaucracy, and in the case of the Minerals Management Service, which was responsible for checking oil rigs, drug and sex parties with oil company executives.Once again, government regulation can damage the recovery effort in the Gulf, and money intended to help the ordinary citizens who have lost their livelihoods can end up in the pockets of union bosses, and by progression in the coffers of the Democrats. Never let a crisis go to waste? Certainly. The BP escrow account is indeed a shakedown and doesn’t solve any problems, but rather, creates many more.