Friday, June 25, 2010

BP (NYSE:BP): Bankruptcy a Reality?

As the lawsuits mount and Obama and his administration don't seem to understand BP (NYSE:BP) isn't the Federal Reserve (just can't print money to cover everything), the growing possibility of them going bankrupt increases.

For a time it didn't seem to be a probability, as many kept pointing to how much money the company was generating. But starting with the misguided and coercive methods used to force BP into creating the $20 billion escrow fund, it's all been downhill, and people and institutions are increasingly emboldened to take steps they may not of otherwise taken.

That was especially true after the new escrow czar Ken Feinberg stated he'll error on behalf of claimants in order to get money out quicker. In other words, people and businesses could be paid far more than they are owed in order to move things along. Another reason BP should have never agreed to it.

What happens when the fund runs out after Feinberg's spending spree? He'll come knocking on the door again for BP to put up even more money.

Beyond that, now a New York State pension fund has sued BP, and there will be more of those types of lawsuits to follow. That lawsuit is based upon the fund losing money because BP's share price has fallen. That's being presented under the guise that BP hid from the pension fund that they couldn't handle a major disaster.

The liabilities and lawsuits are becoming an epidemic and not a realistic response from wronged people and businesses.

Politicians, economists, and some analysts, have made assertions that BP can easily handle this and remain a strong and viable company. The problem is it's no longer true.

The problem with all the above saying these things is they're thinking like those used to having the Federal Reserve print out money in attempts to save the economy, banking system, insurance companies, auto companies, etc.

They need to quickly realize that BP doesn't have a printing press like the Federal Reserve, and if things are allowed to go too far, there will be a bankrupt BP which will seek protection in order to survive.

Daily estimates of liability costs continue to soar, and if some of the higher projections prove to be true, it's hard to see how BP could continue operations. In that case everybody loses, and only those in first to get their share of the early money will get anything out of it.

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