BP's Shock Waves

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The irony of all of this, of course, is that BP could end up serving as the ultimate example of the myopic incompetence of Wall Street gamblers. Twice in two years — first with AIG, now with BP — the global investment community has been badly burned by British-based corporate executives who looked from afar like highfalutin', Savile Row-clad royalty, but proved upon closer examination to have been managed by greed-sick, corner-cutting morons from the Crazy Eddie school of business ethics.

You would think Wall Street would have known better than to bank on BP, given the company's track record of idiocy and double-dealing. Long before Goldman Sachs agreed to pay a record $550 million in fines this year for defrauding its own investors, BP had already been forced to cough up a similarly massive settlement for financial shenanigans: In October 2007, the oil giant agreed to pay a whopping $303 million for manipulating the propane market — a scheme that jacked up prices for some 7 million Americans.

BP's attempts to make money in a legitimate fashion, meanwhile, have been plagued by faulty equipment and dangerously shoddy management. Well before the explosion at Deepwater Horizon, which incinerated 11 workers, the company had put employees at its refinery in Texas City at risk by neglecting to fix faulty equipment in order to grease its bottom line. "We have never seen a site where the notion 'I could die today' was so real," observed a consulting firm hired to inspect the facility in 2005, two months before a blast killed 15 workers and injured 170. The government, which ultimately discovered more than 300 safety violations at the refinery, concluded that the explosion had been "caused by organizational and safety deficiencies at all levels of BP." Regulators fined the firm $21 million — the largest penalty in OSHA history, until it was topped in August by an additional fine of $50.6 million for violations at the same refinery.

The fines must not have been that sobering to BP, however: Within a year of the fatal explosion in Texas City, a corroded pipeline that the company had failed to fix was dumping 267,000 gallons of oil into the waters of Prudhoe Bay in Alaska. For that environmental nightmare, BP ended up paying another $20 million in fines.

By that point, the company was also dealing with a disaster it had created in the Gulf at an oil platform called Thunder Horse. In what one engineer called a desperate attempt to "demonstrate to their shareholders that the project was on time and on schedule," BP rushed the unfinished rig into service — only to have a valve that had been installed backward cause the whole thing to list over and nearly sink. Since the platform wasn't fully operational yet, there were no major spills — but BP lost hundreds of millions of dollars and set its drilling back three full years.

Thus it wasn't exactly a freak occurrence when BP earlier this year blew off safety warnings about Deepwater Horizon. On the contrary, the disaster was a perfect expression of everything BP had come to stand for: serial inattention to safety in a blind rush for profit, in a business where bad safety procedures are about the only sure way to lose money. And yet, at the start of this year, Wall Street investors considered this incorrigibly bumbling corporate comedy act to be almost as good a bet as the U.S. government. Yes, the firm is cash-rich and has mountains of physical assets — but at some point, who you are and how you operate has to count for something.

Which brings us to the most important point underlying the billions of dollars in bets that have been placed on the company's debt. Right now, every high-ranking BP executive is working hard to convince us that the oil giant won't eventually try to weasel out of paying for its galactic mess by filing for bankruptcy. Kenneth Feinberg, the lawyer hired to administer the firm's $20 billion cleanup fund, said shortly after Obama's speech that a BP bankruptcy would be "a disaster for the people of the Gulf" and is "not an option." Then-CEO Tony Hayward also assured investors that BP has more than enough cash to survive: "The strength of cash-flow generation in recent quarters," he said, "has provided us with a balance sheet that allows us to fully take on the responsibility for the Gulf of Mexico response."

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Matt Taibbi

Matt Taibbi is a contributing editor for Rolling Stone. He’s the author of five books and a winner of the National Magazine Award for commentary. Please direct all media requests to taibbimedia@yahoo.com.