North Star Writers Group - Syndicated Commentary: Opinion, Humor and Features

October 20, 2008

Bail Out Big Oil? Hey, With Prices Plummeting, Why Not?

Get Henry Paulson on the phone! Somebody reach Ben Bernanke! Call Congress back into session!

Crude oil has plummeted to the $70-a-barrel neighborhood. The price of gasoline has plunged to $2.69 a gallon at my local Costco.

It’s time for another bailout . . . for the oil companies!

Calm down, I’m only kidding. But how much sillier would it be to “rescue” Big Oil than to shovel hundreds of billions of dollars to big Wall Street investment houses that just a year ago were raking in profits (and paying executive bonuses) at record rates?

Or to tee up tens of billions more for the Big Three automakers who are dropping megabucks for employees not to work?

After all, the Dow has dropped roughly 35 percent in the last year – a decline that galvanized Congress into passing the monster bailout. John McCain wants to devote $300 million to prop up mortgages for thousands of homeowners, when the most widely followed housing price composite has fallen just over 20 percent since its peak in 2006.

What’s that compared to a 50 percent crash in crude oil prices since mid-July, or a dive of nearly a dollar in gasoline prices this month alone?

Pikers.

Yep, things can get a little goofy when Congress starts making long-term policy (like a $700-billion handout my great-grandkids could be paying off) based on short-term swings in markets. Wasn’t it just a few weeks ago that Barack Obama was promising a windfall profits tax on “excessive oil company profits” . . . so he could hand every American family a $1,000 “emergency energy rebate?” Now, just what part of that $77 a barrel three-month decline represents the “windfall profits?” And why hasn’t Barry O mentioned this “emergency” lately?

Meanwhile, the Honorable Nancy Pelosi, Speaker of the House, has informed America that the declining economy requires a second stimulus plan. (Good golly, that first one really got things going, didn’t it?)

The price tag? A mere $150 billion. A bargain compared to the moola Uncle Sam has been splashing around lately.

Is this government, or Deal or No Deal? Somebody cue Howie Mandel.

Anyway, I don’t want to spoil the fun, but shouldn’t someone explain to the gentle lady from the Left Coast that the recent slide in gasoline prices is providing a daily economic stimulus of around $400 million, with no cost to the beleaguered taxpayer?

If current prices hold for a year (and since pump prices lag crude costs, it’s actually going to get better) those savings come out to – sacre bleu! – $146 billion. Just a rounding error in the government cash lottery from the largess Ms. Pelosi wants to bestow upon us all.

I know, I know. You say there’s a big difference between the Wall Street crisis and the greedy oil companies falling back from record oil prices and profits. The rescue plan was distasteful, you agree, but the government had to step in. Markets couldn’t price assets. Since no one knew what assets were worth, no one could tell which banks were going to go down next. Ergo, no one wanted to lend any money. Small businesses couldn’t get access to short-term funds. Companies couldn’t meet payroll, and some would go under. Yada, yada, yada.

Don’t tell me that assets held by banks don’t have an underlying value. A house is a house is a house. Sooner or later, if the price gets low enough, someone will want to buy it and live in it. Same with stocks. They represent the value of companies that have assets and generally, make money. If those businesses make less money, yes, their prices will suffer.

Some securities will become worthless (though their assets won’t). No question. But isn’t that what they call “creative destruction?” If you don’t think so, might I interest you in some American Motors stock?

Some businesses and workers will surely suffer in the short term as well. And, I hasten to add, some oil company investments planned at $147.27 with predictions of “peak oil” and $500-a-barrel prices on the horizon probably ain’t looking so hot right now. Not to mention that Big Oil shares and profit margins have seen better days in the very recent past.

But that’s the story of – that’s the glory of – markets.

Someone’s distressed asset becomes someone else’s bargain. As values line up with reality, housing may just become affordable again for young couples priced out of the market.

Retail sales slide. But we’ll get great deals on Christmas shopping. Stock prices fall, and value investors move in. And yes, gas prices crater – and we have more money to spend elsewhere.

Presto . . . recovery!

Being destroyed, creatively or otherwise, doesn’t feel great. But when will our fearless leaders learn that getting in the way of the process only prolongs the pain, and slows the healing?

Obviously not this year. So if, during this “greatest economic crisis since the Great Depression” – per Obama – Exxon, Chevron, Shell and BP wanted to cut into Congress’s high-rent breadline, who could blame them?

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