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Triple Crunch Log                                                                                                            

business loans accounted for only 17%. Since the crash, net lending to business has fallen by £40bn. The Cresc research also shows that even in a finance-led boom the sector created no net new jobs. Direct employment in finance hovered around the 1 million mark, less than half that in a weakenedmanufacturing sector – and most of the jobs it does produce are concentrated in London and the south-east. Neither can the finance sector credibly claim to be the major source of tax revenue in the UK. It contributed just 6.8% of tax revenues between 2002 and 2008, just over half the amount paid by manufacturers; the reason traditional industry generates more is because it is labour-intensive. On a worst-case scenario, using Bank of England figures, Cresc reckons it could take the finance sector 25 years to repay the £1 trillion costs of bailing it out.”469

“Time to tame the boardroom titans”, who are ruining environment, pensions and more. Ruth Sutherland in the Observer: “Deepwater has also exposed another dangerous dependency in which we are all complicit: our blind reliance on Tony Hayward, Sir Fred Goodwin and other corporate titans to provide for our welfare in old age. The environment is fragile, and so are our pensions. BP accounts for £1 in every £7 of British pension funds' dividend income, and 40% of its dividend payments go to US investors, including state pension funds for teachers and other public servants. Its innocent victims are not just fishermen in Louisiana, but grandmothers from Texas to Torbay.” We need to awaken shareholder – “a sleeping giant” – to turn the system away from its ruinous short-termism towards long-term ownership.470

Banks are back to business as usual, Will Hutton rues. After a trillion pounds of tax-payer support and a trillion pounds of lost output, “our banking system is as disconnected from real wealth generation as ever. The return to business as usual – bonuses, trading in derivatives, the organising of banking as an exercise in which money is made from money – is breathtaking and depressing. And so, given the recent buoyant profit figures reported by our banks, is the easy money.” Banks still keep only £1 in equity for every £50 lent. “Without substantial and far-reaching reform a second crisis is almost inevitable within 10-25 years.” Multitrillion dollar trading in derivatives – essentially bets on the future prices of financial assets – continues: “an invitation to speculate.” “Progress on financial reform – nationally and internationally – is glacial.” “British banks shamefully neglect enterprise, entrepreneurship, investment and innovation. Only 3% of cumulative net lending in the decade up to the crash went to manufacturing; three quarters went to commercial real estate and residential mortgages.” “The result – devastated industries and sky-high property prices.”471

14.6.10. US senators demand BP puts $20bn in an escrow account. They say it does not infer a limit on BP’s liability. Investors are now talking about a fire sale of BP’s US assets as a route to the company’s survival.472

History shows that cuts now would be a massive ruinous mistake: Larry Elliot in the Guardian.  “As things stand, a second Great Depression has been averted, but growth has ranged from the weak in Europe to the unspectacular in the United States. Banks are not lending. Unemployment is running at near double-digit levels in the US and the eurozone. The determination to cut budget deficits in these circumstances does not show that policymakers of probity and integrity have replaced the irresponsible spendthrifts of 2008 and 2009. It shows that the lunatics are back in charge of the asylum.” The danger is not seeing the parallels with 1937, he argues. The budget for 1937 was slashed and the US economy promptly went back into recession. Falling tax revenues meant the budget deficit rose. …. “Just as in 1937, private demand in most advanced countries is too weak to sustain the recovery. Budget deficits are a reflection of high unemployment and low levels of private investment. They are also a reflection of the big financial surpluses that have been amassed in the private sector. Animal spirits, in Keynes's phrase, are low. Consumers are worried about losing their jobs and are having their incomes squeezed. That makes businesses anxious about investing.” …. “So why are they doing it? Is it, for all Nick Clegg's guff about "progressive cuts", that the real agenda is to complete the demolition job on welfare states that was started in the 1980s? Or is simply that the deficit hawks are simply crackers? Either way, we now have the bizarre spectacle of China, Japan, the eurozone and Britain all set on reducing budget deficits while simultaneously pursuing export-led growth. This is a logical absurdity because somebody, somewhere has to be importing all the exports. If the rest of the world assumes that the US is once again going to become the world's spender of last resort it is seriously mistaken.”473

15.6.10. Obama uses an Oval Office TV address to call for “national mission” on clean energy. This is his first. Presidents usually only use them in times of great stress, e.g Kennedy during the Cuban Missile Crisis, Bush when invading Iraq. Apart from the expected pledges on further action in the Gulf, and BP’s requirement to pay, he says: “For decades, we have known the days of cheap and easily accessible oil were numbered. For decades, we have talked and talked about the need to end America’s century-long addiction to fossil fuels. And for decades, we have failed to act with the sense of urgency that this challenge requires” ...The consequences of our inaction are now in plain sight”. …“We cannot consign our children to this future. The tragedy unfolding on our coast is the most painful and powerful reminder yet that the time to embrace a clean energy future is now. Now is the moment for this generation to embark on a national mission to unleash American innovation and seize control of our own destiny.” But there is no mention of a timeframe for the stalled clean energy bill, or other specifics. There is a lot of criticism of the speech in commentariat around “nothing new.” John Boehner, the Republican leader in the House: “President Obama should not exploit this crisis to impose a job-killing national energy tax on struggling families and small businesses.”474

Obama administration lifts estimate of spill size to 60,000 barrels a day: an Exxon Valdez every four days.

House Energy & Commerce Committee lists 5 big questions for BP in a letter published ahead of congressional hearings today. FT Energy Source:

“Well Design. On April 19, one day before the blowout, BP installed the final section of steel tubing in the well. BP had a choice of two primary options: it could lower a full string of “casing” from the top of the wellhead to the bottom of the well, or it could hang a “liner” from the lower end of the casing already in the well and install a “tieback” on top of the liner. The liner-tieback option would have taken extra time and was more expensive, but it would have been safer because it provided more barriers to the flow of gas up the annular space surrounding these steel tubes. A BP plan review prepared in mid-April reconunended against the full string of casing because it would create “an open annulus to the wellhead” and make the seal assembly at the wellhead the “only barrier” to gas flow if the cement job failed. Despite this and other warnings, BP chose the more risky casing option, apparently because the liner option would have cost $7 to $10 million more and taken longer.

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