Business

BP is downplaying the Gulf oil leak, situation evolving into epic disaster

A blanket of oil swamped the Louisiana wetlands like a thick layer of syrup on Wednesday, as a seemingly endless geyser of oil continues to pour into the Gulf of Mexico.  The oil has invaded marshes near the Mississippi River’s mouth at Pass a Loutre, North Pass, and South Pass.

Satellite images show that the oil stream has entered the Loop Current, which could drag the blob across Florida’s coast.  National Geographic reports that the Loop Current could carry the oil south to the Gulf Stream, which would inevitably drag the mess around Florida, and north across the East Coast.

BP announced on Sunday that – after three weeks – it had finally managed to contain one-fifth of the constant stream of oil.  But no one knows for certain how much that actually amounts to, because BP and the U.S. Coast Guard will not allow independent scientists, researchers or journalists into the area to monitor the situation up close.

BP originally reported that 1,000 barrels of oil per day were filling the Gulf.   Five days later, the federal government raised the official estimate to 210,000 barrels per day.  After BP released footage last week of the actual leak, many scientists and oil experts have argued that the leak could be as much as 20 times that official estimate.

BP’s current plan has been to spray the ocean with record-breaking amounts of a toxic chemical called Corexit. The chemical make-up of Corexit is kept secret under competitive trade laws, but it has been linked to human disorders, such as respiratory, nervous system, liver, kidney and blood disorders after its use during the Exxon clean-up. Corexit is banned in England and other European countries.

Another variable to consider is the impact of hurricane season.  Not only could tropical storms disrupt clean-up efforts; hurricane winds could carry oil to fresh water lakes and rivers, where it will destroy more of the U.S. ecosystem.

Did computers temporarily crash the stock market?

Computerized trading programs triggered a massive sell-off on Thursday, sending the stock market crashing down before it instantly rebounded, in less than an hour.

The Dow fell 1,000 points before recovering 700 points by the closing bell, ending the day down 347.80 points (3.2 percent) at 10,520.

SEC officials are now investigating whether a single trader caused the sudden crash, when he accidentally placed an order to sell $16 billion, instead of $16 million, worth of futures.

The mistype caused computer trading programs to initiate massive sell-offs across the market, sending the market on an unexpected downward spiral.

Investors have set up these computer programs to react instantly to sudden changes in the stock market.  The programs use complex algorithms to react instantly to the market, and give traders the best possible price on trades.

But Thursday demonstrated how easily the system can malfunction, as computerized selling led to more computerized selling – intensifying the sudden fall.

The New York Stock Exchange reported that it experienced no problems on its end, and that the SEC would hold a conference call with various markets to discuss the incident.

Nasdaq canceled all trades that were executed between 2:40 p.m. and 3 p.m. that it considered “clearly erroneous.”

The Dow has fallen 631 points (5.7 percent) since Tuesday amid fears of Greece’s massive debt crisis (As well as the 200,000 gallons of oil spewing into the Gulf every day; flooding that has devastated Memphis; and Call of Duty’s programmers leaving Activision to start their own company, Respawn Entertainment.)

Below is an example of one of those automatic computer trading programs.  They have long been criticized by market analysts and, in my opinion, they should be outlawed.

Gulf Oil Flow could take months to stop

British Petroleum has prepared a plan to stop the massive flow of oil pouring from the seafloor into the Gulf of Mexico.

The plan is to lower heavy, concrete-and-metal boxes into the gulf to capture the oil flow and redirect it to a barge at the surface.

The method has worked in the past, but only in shallow waters.  It has never been tried at 5,000 feet below sea level.

“It’s probably easier to fly in space than do some of this,” Charlie Holt, BP’s drilling and completion operations manager in the Gulf of Mexico, said Sunday.

BP projects that the best case scenario for the plan would take at least one week to stop the oil flow.  But if that doesn’t work, Plan B would take months to execute.

U.S. Interior Secretary Ken Salazar said Sunday that the second option would be to drill a second hole into the ocean floor, and divert the oil to another area to be extracted.  But that plan would take about three months to implement.

“You’re looking at potentially 90 days before you ultimately get to what is the ultimate solution,” Slazar said Sunday, alluding to the plan.

In the meantime, 200,000 gallons of oil will continue to pour into the Gulf of Mexico every day until someone figures out how to shut it off.

The oil slick grew over the weekend from the size of Rhoad Island to larger than the state of Delaware, and it is now visible from space.

Al Jazeera posted a great visual breakdown of how the disaster happened.

NASA captured these satellite images last Friday.

Goldman Sachs charged with fraud

The Security and Exchange Commission on Friday charged Goldman Sachs with fraud.

The SEC alleges that Goldman Sachs purposely misled investors into buying a mortgage-backed security that it knew was destined to fail.

Goldman let Paulson & Co., one of the world’s largest hedge funds, choose which  investments to include in the portfolio, knowing that Paulson was betting against it.  It did not disclose to investors that Paulson influenced the selection process – and when it crashed, Paulson made $1 billion from investors, while Goldman raked in the fee money.

“In sum, [Goldman Sachs] arranged a transaction at Paulson’s request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson’s role in the portfolio selection process or its adverse economic interests,” reads the SEC’s complaint.

As of Sunday night, two members of Congress and British Prime Minister Gordon Brown have called for investigations into the bank’s role in the 2008 subprime mortgage meltdown.  Germany has also considered taking legal action against Goldman, according to the New York Times.

Is JP Morgan deliberately trying to confuse its customers?

Beginning in July, the new CARD Act will prohibit banks from charging over-draft fees on debit card customers – unless the customer voluntarily opts-in for the ability to overdraft money from his or her account.

Banks have traditionally profited from debit cards by charging overdraft fees of $30 or more when customers withdrew more money than they had from their accounts.  But the new law gives customers the option to decide whether they want to be able to overdraw money in the first place.

Some banks have started to focus marketing efforts on encouraging customers to opt-in for the overdraft service.

But JP Morgan Chase has been accused of purposely trying to trick its customers by making its opt-out question deliberately confusing.

The Consumerist, an online consumer advocacy coalition, posted Chase’s opt-out question on its website, and I posted it below.  (Click to enlarge)

The controversy

The document leads with “the benefits” of opting in to overdraft money.  The first benefit, listed in bright red letters: “Allows you to use your debit card” – as if to say your debit card won’t work unless you opt in.

It then asks two yes-or-no questions: whether you read the legal disclosure, and then whether you want to opt-in for the overdraft service.  But to the left of the second question are the words FREE EXTRA CKING – in an apparent attempt to confuse people into thinking that clicking “yes” will give them access to free checking.

It’s pretty sketchy, but apparently legal.

The real question: is it even possible to prevent banks from misleading customers?  Or do customers need to do their own research, and quit doing business with banks like JP Morgan Chase?

How the new healthcare plan works

President Obama on Tuesday signed into law the Democrats’ historic healthcare reform bill.

Democrats promise the new law will expand health coverage to 32 million more Americans, eliminate egregious insurance tactics and save the country more money in the long-run.  Republicans argue that the law will result in a government take-over of healthcare, force the U.S. into bankruptcy and usher in a new era of increased dependence on the government.

Regardless of what you think of the bill, it is now the law of the land.

Immediate Effects

Among its immediate effects:  it will be illegal for insurance companies to deny children coverage for pre-existing conditions, or drop customers from coverage once they become sick.  Small businesses with fewer than 50 employees will receive tax credits to help finance 50 percent of each worker’s health insurance costs.  Young adults who recently graduated from college can now stay on their parents’ healthcare plans until they turn 26.  Adults suffering from pre-existing conditions can now buy health insurance.

How the insurance industry will pay for it

To off-set the losses insurance companies would experience from having to fulfill these promises, the government has promised the industry an influx of new customers.  Starting in 2014, the government will require all Americans to purchase health insurance – similar to how all drivers are required to carry automobile insurance.

How it plans to lower insurance costs

To keep health insurance affordable, the government will require insurance companies to reveal how much money they spend on bonuses and administrative salaries.  Non-profit insurance companies, such as Blue Cross Blue Shield, must now maintain a medical-loss ratio – in which 85 percent of its income must be spent on medical procedures (rather than administrative salaries and bonuses) in order for it to take advantage of IRS tax benefits.  The government will implement new screening procedures over the next few years to identify and eliminate fraud and waste within the insurance industry.  And whenever an insurance company wishes to change a program, it must now go through an appeals process that gives customers the opportunity to challenge the merits of the new program.

How the government will pay for it

The government will obviously need some money to pay for the initial stages of this new plan.  Starting in 2012, the government will enforce fees against drug companies.  Starting in 2013, the government will raise taxes on single people who make more than $200,000 per year, and couples who make more than $250,000 per year.

Democrats hope that by 2014, the huge influx of new customers for the insurance industry, the new drug company fees, and the higher taxes on the wealthiest Americans should enable the new system to sustain itself – and save the country money over the long-term.

How the new system plans to save money

Democrats project that by expanding health insurance to more Americans, it will lower the cost of each individual’s health insurance overall.

This is because under the former system, patients who visited the emergency room without health insurance forced hospitals to foot the bill, which passed the costs on to the insurance industry, which passed the costs on to everyone else in the form of increased premiums.

By expanding health insurance to everyone, individuals will pay less because the responsibility is now spread out to more people – instead of forcing only those who pay for health insurance to pay for everyone else.

The new PR health campaign

The new healthcare bill also includes a PR campaign aimed at encouraging Americans to live healthier lives.  Fast food restaurants will now be required to disclose nutritional facts on their menus – similar to food in grocery stores.  The government will enforce a sales tax on tanning salons.  And the bill allocates $1 billion in credit for firms to research new techniques and therapies for preventing diseases – instead of relying on drugs.

The Politics

Many Americans remain skeptical after an emotionally charged debate in which fear embodied the primary force of opposition.  Republicans will likely use their remaining fear juice to win some Congressional seats in November.  But as for restructuring the way our healthcare system operates – it’s mission accomplished for the Democrats, and the Republicans cannot repeal it.