From Gordon T. Long via Tyler Durden over at Zero Hedge:
As horrific as the gulf environmental catastrophe is, an even more intractable and cataclysmic disaster may be looming. The yet unknowable costs associated with clean-up, litigation and compensation damages due to arguably the world’s worst environmental tragedy, may be in the process of triggering a credit event by British Petroleum (BP) that will be equally devastating to global over-the-counter (OTC) derivatives…
From what I gather, BP is a large corporation with a lot of fingers in a lot of economic pies. As BP’s exposure has grown while the Gulf oil spill has unfolded, money people have started to aggressively reposition themselves away from BP – this creates a risk of what can best be described as a financial heart attack: BP and associates wind up without sufficient funding to carry on, the whole thing collapses and takes down who in heck knows what.
Not a pretty picture – but, also, not at all unexpected by me. BP really screwed up and does have to pay, but I’ve figured for a while now that BP simply can’t pay the full cost of what the Gulf spill will require. While we might think of BP as an oil-company cash machine with unlimited resources (well, “we” don’t think that – but Obama and his Democrats sure do), the fact of the matter is that BP is finite and even if they have revenues in the tens of billions, they have costs only a bit less than that…and now a huge charge has been added at a time when oil prices are flat or down.
Is there a way out? No. No politician will argue that BP should be let off the hook. There is no way for BP to really make everything good. BP will fail in some way, shape or form – and then we’ll all find out just how exposed the financial system is to a BP collapse.
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