The buck drops here.
A hundred billion here, a trillion there. Pretty soon we’re talking real money.
The mad scramble to cash in on the Oprah-like giveaway in DC these days has one pondering what the next inflection point will be in the national debate over how to fix the economy.
The latest with their hands out for handouts:
–Detroit’s Big Three automaker CEOs parked their private jets, apparently to carpool in a Kia to DC and offer up their tin cups to Congress for $34 billion, and perhaps just a crust of bread, sir. Of course, they will receive just enough to tide them over another quarter or so, provided they commit to developing fleets of bumper cars powered by hamsters on Red Bull.
–John Thain, CEO of Merrill Lynch, who insists on getting his $10 million bonus because, gee, he worked really, really hard to steer the iconic Wall Street company to only a $11.67 billion loss and into the arms of bailout beneficiary Bank of America (BOA) in 2008. Rumor has it that had Merrill Lynch actually made a profit last year, Thain would have been elevated to living-god status and fed the hearts of a hundred stockbrokers.
–The powerful Service Employees International Union has decided that, because of the $700 billion bailout of the US financial system, it wants to organize bank workers, according to CNN. The news outlet quotes a union official as saying that companies that receive taxpayer dollars have a “special responsibility to ensure that their workers have a voice on the job…[and] should have a seat at the table.” Or was that a seat at the trough?
– About 200 workers from the United Electrical, Radio and Machine Workers of America that were laid off at a Chicago window factory undertook a “peaceful occupation” of the factory, essentially demanding a “bailout” of their missing jobs after BOA—recipient of $25 billion in federal bailout money—cut off credit to the window factory. (Personally, I’m waiting for Powerball to bail out my retirement.)
Now the mantra among many political pundits and among the mainstream news media—themselves staring into an economic abyss, as evinced by the impending bankruptcy of the Tribune Corp.—seems to be that old-school capitalism is going the way of the dodo and government intervention into markets to rescue industry sectors, job creation, and “redistribution of wealth” will be in vogue.
Please don’t be alarmed. There is ample precedent for this sort of thing: bailouts of the airline industry in 2001, the savings and loan industry in 1989, the energy-loan-related bank failures in 1984, Chrysler in 1980 (talk about déjà vu), New York City in 1975, Lockheed in 1971, and Penn Central Railroad in 1970, among others.
Then there are subsidies, direct and indirect, of every stripe. The US farm program, for example, shells out about $10-30 billion per year in cash payments mainly to producers of wheat, corn, soybeans, rice, and cotton. Subsidized crop insurance, marketing support, and other indirect support adds another $5 billion annually. A good chunk of that cash goes to landowners who don’t farm but use the land for suburban housing development, among other “agricultural” endeavors. About three-fourths of the total goes to the biggest 10% of producers that are growing even bigger by using that fat cash cushion to take over smaller farms. So basically taxpayers are subsidizing the takeover of the small American farm by giant agribusinesses such as Archer Daniels Midland to the point where Willie Nelson must annually step out of his pot haze to inflict Farm Aid on us.
What will be the next industry supplicant for Uncle Sam’s alms? There are many folks in the oil and natural gas industry who are getting pretty nervous over their own future. Although some of us believed that near-$150/bbl oil was unsustainable, the speed and depth of the plunge of more than 70% in oil prices and more than 50% in natural gas prices in 6 months has stunned industry observers. Budgets are getting whacked, production is getting shut in, and the rumor mill is churning out speculation over the threats of layoffs and bankruptcies. There is a lot of nervous anticipation over the inevitable OPEC production cuts this month, as well as over winter forecasts.
What if OPEC and Mother Nature aren’t able to rescue the industry from another all-out collapse? Can the oil and gas industry count on a government safety net too?
Remember the aftermath of the 1986 oil price collapse, when the US government came to the rescue of one of its most strategically critical industries? When Congress and the President authorized the expenditures of hundreds of billions of dollars to rescue floundering oil companies and thereby prevent the layoffs of hundreds of thousands of workers in oil and related industries; stave off megamergers to keep iconic companies such as ARCO, Amoco, Gulf, etc., from disappearing; and use subsidies to prop up oil production that otherwise would plunge by half in 20 years?
No? Don’t remember that historic bailout? Oh wait, that was in an alternate universe.
In our world, some pundits—along with a few congressweasels—are tossing around the notion of forcing the oil industry to use its 2008 profits to bail out the auto industry. The “logic”—for lack of a better term—here is that somehow Big Oil has kept Detroit in its thrall for years, helping to suppress the development of alternative fuel technologies and vehicles that would reduce gasoline consumption and in turn crimp oil markets. Thus Big Oil owes Big Auto big time, or so this line of thought goes.
This “solution” for Detroit comes as the oil industry itself may be looking at the scariest part of its rollercoaster. I guess Big Gov needs to act pretty fast, because those massive Big Oil profits aren’t going to look so massive in 2009.
Gosh, you’d think a buck-and-a-half for regular unleaded would win the industry a few friends—if not a place at the trough.

December 10th, 2008 at 2:42 pm
Fantastic Article! Having been completely involved in the oil industry for 60+ years as a petroleum engineer/geologist I concur completely with your analysis. We will be the scapegoats - shades of Carter and the windfall profits tax. Problem is - the public thinks there is no longer a crisis since gasoline prices have dropped dramatically. They will not accept the idea that an energy disaster is in the making, one that could destroy a lot of our economic system - YES - socialism is the equal distribution of poverty. AND, the Democratic Congress feels that Captialism, being the unequal distribution of wealth, is a bad thing. HOW WAS AMERICA ABLE TO BECOME THE MOST POWERFUL NATION ON EARTH? CAPITALISM!
Great article - unfortunately you are preaching to the choir. Howard R. Lowe
December 10th, 2008 at 3:08 pm
Thanks for the kind words, Howard.
But I don’t want to just preach to the choir. Let’s spread the word.
Surely you have acquaintances outside the industry that are in need of education on oil and gas topics.
Share my thoughts and your own with everyone you know.
That’s what’s great about the internet: Instantaneous diffusion of information.
I don’t have your pedigree, but I have been writing about this industry for almost 30 years now.
I have a tremendous amount of respect and admiration for its professionals and the amazing job they do every day of delivering energy to the world–a world that all too often “bites the hand” that feeds it energy without which it couldn’t survive.
But I have long been disappointed by this industry’s inability to communicate its mission and how it executes that mission to the public at large. If the industry doesn’t want to be a scapegoat, it needs to take steps now. Cheap gasoline has already lulled the public into complacancy. I suspect this will be the shortest industry downturn on record, and the realignment in DC will be poised to capitalize on the price effects of the inevitable rebound by demonizing the industry again in order to further their new energy agenda.
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