The BP crisis in the Gulf of Mexico has rightfully been analysed (mostly) from the ecological perspective. People’s lives and livelihoods are in grave danger. But that focus has equally masked something very serious from a financial perspective, in my opinion, that could lead to an acceleration of the crisis brought about by the Lehman implosion.
People are seriously underestimating how much liquidity in the global financial world is dependent on a solvent BP. BP extends credit – through trading and finance. They extend the amounts, quality and duration of credit a bank could only dream of. The Gold community should think about the financial muscle behind a company with 100+ years of proven oil and gas reserves. Think about that in comparison with what a bank, with few tangible assets, (truly, not allegedly) possesses (no wonder they all started trading for a living!). Then think about what happens if BP goes under. This is no bank. With proven reserves and wells in the ground, equity in fields all over the planet, in terms of credit quality and credit provision – nothing can match an oil major. God only knows how many assets around the planet are dependent on credit and finance extended from BP. It is likely to dwarf any banking entity in multiples.
Full article: A Bankrupt BP
I don't agree with any of this. Lehman Brothers was a dangerous default because it made the asset value of OTHERS worthless.
A bankruptcy of BP would not cause this. Oil prices will not drop, BP's supplies will not disappear, and the activities surrounding those supplies (drilling, financing, shipping) will also continue; all that will happen is another entity will control BP's current assets and increase their "trading and finance" activities to fill in that of a missing BP.
hit the nail on the head
The key here is that when Lehman blew up it disappeared and it's creditors were left with nothing, because most of its assets were levered 30:1. In BP's case, bankruptcy does not mean dissolution. Should they file Chapter 11 (or whatever they have in the UK), their operations will continue, their workers will keep getting paid, and everyone but the equity holders will get paid back because all their assets are real - oil, gas, boats, rigs, etc. The machine that is BP will be around for a long time, whether or not there is a BP logo on the door.
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