It appears, or so say the scientists, that the oil floating around in the ocean is evaporating before it reaches the Florida coast. See: What’s that – good news from the Gulf of Mexico?

The damage to Louisiana was awful, but the damage to Florida may be more psychological.

Bloomberg quoted US Florida Representative Kathy Castor as saying: “The oil is hundreds and hundreds of miles away… Yet the word has gone out all across the globe [that] the Florida beaches are damaged.” See BP Oil Leak Avoids Florida, as Do Tourists Who Think Otherwise

According to CNNMoney: “For many businesses in this region of the Gulf, it isn’t the oil that has hurt them the most, it’s tourist anxiety. When vacationers are jittery they book trips elsewhere, even if there’s no oil on the beach.” See 100 days after the spill

 The Florida tourist industry is worth around $66bn a year. Just imagine BP being forced to foot the bill for all the damage to the Florida tourist industry. It is doubtful the company would survive.

Tony Hayward reckons he was vilified and demonised. He is probably right. To many Brits he comes across as a decent bloke who was misunderstood. He was clearly not responsible for the oil leak when it occurred, and it does appear that BP did everything it could to deal with the leak. Those who say it should have done more, or that the US government should have done more, are living in a land that is populated by clouds and cuckoos.

But the backlash against BP in the US is such that little things like facts and truth are irrelevancies. For that matter, one can’t help but wonder whether any US based investigation will be wholly objective.

Once a crowd acts in unison, it takes little short of hell freezing over for the crowd’s constituent parts to change their minds.

Such madness of crowds is not always a bad thing. The spirit of the Blitz won the Second World War for Britain and her allies; the mourning at the time of the death of Diana Princess of Wales may have been quite extreme, but it did no harm, and at least it demonstrated crowds can care. (There could even be an evolutionary explanation for madness of crowds.)

The media is not solely to blame. The media is like a mirror – it reflects back its public’s views. It would be wrong to say the media moulds public views; the process is more subtle than that. It may be better to see madness of crowds as akin to two magnifying mirrors facing each other: a public and a media glass. Each reflects back the image they face, but magnifies it.

Clearly the damage done to the Florida tourist industry thanks to BP’s negative publicity is down to the complexity of crowd behaviour. But it is crowd behaviour that may yet force BP to fork out more money.

But just suppose the inquiry into the oil spill finds that BP’s safety standards were no worse than those employed by other oil companies, and that they adhered to regulatory requirements. Suppose the inquiry finds that the company did all that was possible to fix the oil leak and clean up the mess. Suppose it found that Tony Hayward was put under more stress and pressure than one could realistically have been expected to withstand. Supposing the inquiry finds that Hayward’s £10 million pension was justified as his pension pot was earned over 30 years. What then: would BP and Hayward be able to sue the mad crowd?

This is the snag with crowds. They have enormous power, and no responsibility.

Before we tell you about the good news, here are a few more comments on the departure of Tony Hayward.

He looked a dejected figure yesterday, and when he described himself as demonised, you can understand why.

Some commentators in the US media said that there was never anything anti British about the BP media coverage. Some think that the US public will warm to BP when they hear its new boss, Bob Dudley, speak, and the clear tones of his American are revealed. But then other commentators disagree, and say the US public were indifferent about Hayward’s British accent, and it was what he said that upset them, rather than his accent.

But then again, these commentators themselves may have missed the point. Tony Hayward clearly was upset over the BP debacle. Very upset indeed. But his British sense of understatement meant that his feelings were not made obvious.

His problems in the US were not so much related to there being an anti British feeling, but did relate to a cultural misunderstanding.

As the saying goes, Britain and America: two countries separated by a common language.

There is something terribly ironic about Mr Dudley’s appointment being greeted with talk of a new era of safety first at BP. This is precisely what was said when Hayward was promoted to the role of BP CEO.

Mr Hayward reckons that once the exhaustive inquiry has finished, it will be concluded that BP’s safety procedures were in no way inferior to those at its rivals. BP was just unlucky.

Talking of luck, before he has had time to sit comfortably at his new desk, BP’s new boss has got good news to contend with.

According to a report on Bloomberg, the oil currently floating on the ocean in the Gulf of Mexico is dissipating fast.

It is all a bit scientific. First there was the Loop Current that took the oil towards the Florida coast, then a counter flow of eddies, known locally as Eddy Franklin, met the current, with a circular flow being created. So, much of the spilled oil is in a loop. It won’t stay there for ever, and the Loop Current will force it towards the Florida coast eventually. But the latest studies suggest that by then the oil will have evaporated.

It could be very good news indeed, and could ultimately reduce BP’s bill quite significantly.

You see what a difference a new boss makes?

BP had an impressive quarter. In the event profits came in at $5bn, using the replacement cost measure that oil companies prefer. This was a profit after deducting one offs, of course.

Alas, one offs included $32.2bn to cover the costs associated with the Gulf of Mexico oil spill.

All in all, BP made a loss in the quarter of $17bn.

Apologies for this, but we are now set to use some jargon. Analysts usually define a loss on the scale suffered by BP as “a lot of money”.

Although don’t get too carried away about this. In the scheme of things, BP’s loss was like a piddle in the ocean (or is that an oil drop in an ocean). After all, a company that used to be called AOL Time Warner lost $98.7bn back in 2003. (But of course there are differences; the AOL Time Warner loss was predominantly a paper loss, and was only so large because Time Warner had over-valued AOL in the first place.)

And yet, BP’s outgoing boss is to be given one year’s worth of salary and a pension worth £10m. Not a bad reward for having become known as the most hated man in America.

It is just that much of the criticism aimed at Hayward was unfair. For one thing, he was not responsible for any of the cost cuts that may have caused the oil leak. The great cost cutter was his predecessor, Lord Browne, the man who is now a government adviser.

In all the recriminations over the banking crisis, we were told that rewarding people for results was good, but there had to be a sufficient time lag to ensure good company results were based on solid foundations. But how long should this time lag be? Will it ever be long enough?

Lord Browne must count himself lucky. Leaving the company as he did under a cloud, he is busy dishing out advice while someone else is slammed for the errors that were made under Browne’s watch.

There can be no doubt, Mr Hayward is a terrible PR man. But maybe his biggest error was to be British. We are not saying there was anything xenophobic in the US’s BP and Hayward bashing, rather the American public just didn’t get him. Maybe it was his British understatement that was his undoing.

Of course, under Stalin’s Russia, anyone erring on the scale seen at BP would have been carted off to Siberia. This is rather apt, because it seems Mr H will remain involved in BP, but with its TNK-BP venture based in Siberia.

Meanwhile, his replacement at the BP helm, Bob Dudley, only happens to be the same Bob Dudley that headed the TNK-BP venture, but left under a cloud of his own. At least, it was a cloud as far as Russian authorities were concerned.

It seems hard to believe that there was a time when BP interests in Russia were like a millstone around its corporate neck. In a world of political uncertainty, it seemed BP’s best hopes resided with its US based assets. Now it may be the Russian and Libyan ventures where the stability lies.

According to a new report, the UK tourism industry is set to grow by 60 per cent, taking the industry to £188bn in annual revenue.

Visit Britain published the report, which was produced by Deloitte and Oxford Economics. The report said: “The favourable exchange rate, the lure of the 2012 Olympic and Paralympic Games and the appeal of our world-renowned attractions, should ensure the sector grows at an above-average 3.5 per cent per annum between now and 2020.”

But, and this is the catch, Visit Britain says that the boom will only occur if the government lends a helping hand. (There’s always a catch, isn’t there?)

Visit Britain says the government can help by “co-ordinating marketing to help small and medium sized tourist businesses who cannot afford to do it themselves, enabling rural firms who face higher costs of operating to adopt innovative technology, and supporting the many districts across the UK that rely disproportionately on tourism as an important source of jobs for low skilled and part time workers.”

Apparently, or so says the report, the UK tourist industry is currently worth £115bn a year to the UK.

Of course, the predictions from Deloitte and Oxford Economics do rather depend on the pound staying cheap. Right now, there is no way of knowing whether it will.

And here is something else the government can do to help.

It can make the weather better.

Have you noticed there is a correlation, albeit far from precise, between bad weather and predictions of bad weather from the Met Office. Maybe the government could make predicting bad weather illegal. That might help.

Mind you, the weather has definitely improved since the coalition government was formed. Maybe last year’s prediction of a barbecue summer was all a part of Labour’s lies.

Maybe, then, there is something almost poetic about the way profits seem set to crash at banks.

Goldman Sachs saw its net income crash from $3.4bn a year ago, to $613m in the latest quarter.

The news of the fall in profits has sent tremors across Wall Street. If even Goldman Sachs is feeling the heat, what hope is there for the other banks?

The bank’s boss, Lloyd Blankfein, said: “The market environment became more difficult during the second quarter and, as a result, client activity across our businesses declined.”

We all know Europe’s banks could face a crisis soon. And the results from Goldman Sachs are a pretty awful prelude to what may prove to be a new banking crisis.

There are lessons here.

The purpose of banks is to use money that would otherwise be sitting idle, and to make this money productive. In this way savings can be used to create wealth.

But ever since the dotcom crash, savings went into so-called safe assets that ultimately did nothing to promote wealth.

After the dotcom crash, investors talked about bricks and mortar. Investing in technology became a joke, and that is where investors made their big error.

Of course the dotcom excesses of the late 1990s were ridiculous. But essentially, the technology boom was built on good intentions. It is just that markets ran away with themselves.

The reaction to this dotcom crash created a bubble that did absolutely nothing to create wealth. Banks followed practices they thought were safe, but while it is true to say bank lending to businesses is risky on an individual basis, on a macro scale it is essential. Indeed, in the long term, economic growth cannot occur without it.

For more on this, see: Why risk is skewed against risk takers

For all today’s articles in this series

See Company results season, wealth creators score hat trick against wealth destroyers

Google, too, sees profits leap and Ya Who?

The end of desktops

While techs boom, banks may be returning to crisis

The truth is, the iPad is just the latest in a long line of products to take a dent out of the PC’s monopoly. Digital cameras, smart phones, e-readers, and even those electronic picture frames you see in the shops these days, are all examples of how non-desktop PCs are taking off.

As for touch screens, once you get used to a touch screen mobile, it is hard to go back to traditional mobiles – it really is.

User interfaces are improving, touch screens are becoming more sophisticated, and components cheaper.

Bill Gates was laughed at when he talked about a PC on every desk. We are now moving towards a PC/computer of some sort in every room, in every handbag, and in at least one pocket per person.

Yesterday we talked about how technology is transforming the economy. It could be the ultimate cause of today’s economic crisis, but could also prove to be the way we get out of crisis. See: The two words economists forget

By contrast, while techs boom, banks may be returning to crisis click here for more  See: While techs boom, banks may be returning to crisis
For all today’s articles in this series

See Company results season, wealth creators score hat trick against wealth destroyers

Google, too, sees profits leap and Ya Who?

The end of desktops

While techs boom, banks may be returning to crisis

The last few days have seen results from Apple, Google, Yahoo and Goldman Sachs. That’s quite a contrast, isn’t it? What have the profits at the world’s most influential, or is that controversial, bank got to do with the news from the three big techs?

Well, actually, quite a lot.

Apple’s halo has received a nasty shock

The iPhone 4 has been hit by problems that remind one of Apple in the bad old days of the early 1990s. Steve Jobs is on the back foot, and hasn’t dealt with it well. Despite this, profits soar yet again.

The story of Apple, and the up and down career of its boss Steve Jobs, is surely one of the most interesting tales out there. In the early days, Apple did things differently from the rest of tech land. While the rest of the world went IBM compatible, Apple stayed with its proprietary software.

In those days there were two types of people in the world. Those who loved their Mac, and those who just couldn’t work out what the fuss was all about. The one big thing Apple had in its favour was that its products were considered to be the best for the publishing industry. And so it was that its biggest fans were amongst the press.

That’s a nice trick. If you are going to have a small fan club, just make sure it is made up of the media. When opinion formers love you, then you have got something worth holding on to.

You may recall, Jobs got fired from Apple. He managed to lure in a big-wig from Pepsi, John Sculley, as his CEO, but the two men fell out and in 1985 he was ousted from the company he formed by the man he recruited.

It seems unfair, but back then Jobs had a reputation for being difficult. And for years business textbooks cited the story as an example of why a company’s founders are not necessarily the right people to run it when it expands.

But Apple post-Jobs was a mess. At one point it launched an education machine called the Pippin; it was subjected to a blaze of marketing hype, and was a complete, runaway disaster.

In 1996 Jobs was lured back, after Apple bought his company NeXT. It took a few years, but finally with the launch of the iPod the company became the wonder firm it is today. It got itself a halo, and Jobs, or so the world decided, could walk on water. And during those wilderness years, by the way, Jobs bought a company from Lucasfilm and changed its name to Pixar. He did a big deal with Disney, then fell out with the company’s boss, but a boardroom coup at Disney ultimately left Jobs as the biggest shareholder in the famous film/theme park company.

In its latest quarter, Apple made profits of $3.25bn, compared to just $1.83bn this time last year. (‘just’ $1.83bn? It is not that long ago that the company was hailing its first quarterly profits in excess of a billion dollars.) Apple’s growth in profits since the launch of the iPod goes beyond the extraordinary.

But the iPhone 4 has not gone down well. Essentially it is a mobile phone that can act as a computer, but which isn’t very good as a mobile phone. Jobs has not dealt with the problem well. In fact in some ways one is reminded of the old Jobs in the early Apple years. Rather than rushing in to correct the error, making a humble statement and doing all it could to correct the damage to its reputation, Jobs started slagging off the opposition, talking about how bad their phones are.

Apple remains haunted by the problem of proprietary, and is reliant on a continuous stream of innovative designs. Its long-term strength requires the company to gain more corporate supporters. The range of apps that support iPhone is impressive, but ultimately this company’s long-term success depends on other companies selling iPhone compatible phones and computers. And open standards do not come naturally to Jobs.

And that brings us to the other miracle tech company: Google

See: Google, too, sees profits leap and Ya Who?

For all today’s articles in this series

See Company results season, wealth creators score hat trick against wealth destroyers

Google, too, sees profits leap and Ya Who?

The end of desktops

While techs boom, banks may be returning to crisis

Last night it was revealed that the bank will be forking out $545m as compensation for the disaster that was the subprime portfolio Abacus. RBS lost around $840m from the portfolio and yet is getting only around $100m back from the Goldman compensation.

Meanwhile, it looks like BP may be banned from drilling off US shores for seven years. The legislation, that could be introduced imminently, will deal a nasty blow to the company, which is after all being forced to pay out massive compensation costs related to the oil spill that could potentially be around 60 times greater that the Goldman costs.

Are US authorities being a tad hypocritical?

The first thing you need to bear in mind is that the oil leak was BP’s fault. Conversely, it could be argued, and indeed Goldman Sachs has been making precisely this point, that the Abacus debacle was neither illegal, nor even immoral.

So, the great vampire squid sold derivatives to clients, and at the same time took bets against these funds from Paulson, the huge investment company, without telling other clients. Worse, Paulson was apparently playing an active role in determining what securities made up the funds.

On the face of it that sounds awful, but then again it is quite normal practice. If you have a special reason to think the market has misjudged a certain type of investment vehicle, and so bet against it, it is quite normal to hide your doubts and even try to promote others’ enthusiasm. Banks simply carry out the wishes of their clients.

Goldman Sachs’ defence was firstly that what it was doing is normal, and that its clients were well aware it follows such practices and should have known it was possible other companies were betting against the Abacus securities.

Second, Goldman itself made a loss from Abacus, so it can hardly be accused of deliberately promoting its own self interests.

On the other hand, as arguably the world’s most powerful bank, Goldman Sachs stood centre stage in the subprime disaster. During the senate enquiry into the Abacus funds, Goldman’s representative was at best unhelpful, and at worst downright obtrusive.

Maybe the bank was unlucky. It did what it always does, but on this occasion came badly unstuck. Therefore it is not really guilty at all.

It is just that business is a hard world. The fact is, banks made billions of dollars for years, and yet it appears much of these profits were built on … well, it is difficult to think of a polite word. The one that comes to mind rhymes with ‘full wit’. It is surely not even debatable that banks that are now making profits should channel a big portion of this money into compensating for the economic havoc they wreaked.

After all, without the banking bailouts of 2008/09, orchestrated by the likes of Gordon Brown, would there be any major banks left in the Western world? It is seems possible they would have all tumbled, including the likes of HSBC and the bank of the vampire squid.

“There for the grace of God, go I.” RBS and co. only survived thanks to government money. Others were able to manage without bailouts, but the truth is, the bailouts saved all. The banks that really did stand centre stage are now making huge profits. And then they pay derisory compensation. See Goldman’s compensation costs in the light of the losses that occurred as a result of subprime.

Now we are comparing subprime with the Gulf of Mexico oil spillage. That would be ridiculous. On an economic basis, subprime was much worse.

But the final bill for BP is likely to be around $30bn. Why, it has got 20 big ones sitting in escrow.

This is what an article in the FT had to say about the latest attempt to seal the oil leak: “A mile down and 40 miles out to sea off the coast of Louisiana, a BP-led team has been achieving unprecedented feats of engineering.”

It is the untold story of the oil leak. The efforts made by BP’s engineers have been nothing short of heroic. The FT described what they are trying to do as like “brain surgery in the dark”.

The truth is that when it comes to deep sea oil drilling, BP’s expertise is second to none. And the expertise is truly mind-numbingly amazing.

The PR disaster has been the company’s failure to communicate this.

Did cost cutting lead to the oil spill? Maybe, but so far the case is unproven. A more likely factor is simply that drilling for oil in deep sea is extremely dangerous.

If you really want to look to blame something for the oil spill, blame peak oil and our seemingly unquenchable thirst for black gold. And the US, as the world’s greatest costumer of oil, is more guilty that anyone.

In the UK, petrol isn’t just taxed up to the hilt, it is taxed much further than that. In the US oil is subsidised. Maybe the US government is more guilty than any for the oil spillage because its subsidies, and its refusal to admit to the problem for so long, distorted the market.

Okay, it woke up to the problem a few years ago now. Even George Dubya talked about America’s addiction to oil. But we are paying the cost for the legacy of US energy policy going back decades.

It is possible BP is paying a legacy cost too.

Tony Hayward is the big bad wolf in America right now, but the BP boss hasn’t been in his job long enough to have implemented the changes to safety that some say could have avoided the oil spill disaster. It can take ten years for a complete overhaul of the safety procedures in a company like BP.

Some people in America blame Barack Obama for the US recession. That is absurd. Clearly the cause of the recession occurred before Mr Obama was in the White House. But it is equally absurd to blame Tony Hayward for the oil spill.

Here is the real puzzle. How has BP agreed to park $20bn into escrow without first agreeing it would not be subject to any kind of drilling ban?

All of a sudden talk is that Exxon Mobil will be making a bid for BP. It seems unlikely a merger will go ahead. The US oil giant is busy integrating XTO, the energy company which cost Exxon around $42bn. To try now to buy BP, and then to integrate it, would be a bridge way too far.

But it does appear that beyond it all, there is just a hint of US xenophobia in action. The Toyota debacle smacked of being anti-Japanese, too.

In a way we are seeing US protectionism. It is protectionism by the back door, but it is protectionism just the same.

The French and the Germans want to bring in legislation that will effectively make it harder for US banks to compete in Europe, and they are slated for being protectionist.

But is the US government really being any different?

And then you get one of the world’s most profitable companies, that makes money even faster than GM could blow it, and it seems the authorities, or at least one authority in particular, are hell bent on bringing the company to its knees.

According to the Guardian, the final bill to BP for the oil spillage could be $34bn, more than double its annual profits. US senators are talking about the company putting $20bn into escrow, meaning ring fencing it to pay for economic damages, but say this should not be seen as a cap on legal damages. The Guardian reckons with cases pending, the final bill could be $34bn.

Back in 1989, following the Exxon Valdez oil tanker disaster, Exxon Mobil was initially fined $5bn, equivalent to its annual profits at the time. But after a long run of appeals and counter appeals, the final fine was half a billion dollars. But other costs meant the overall bill to the company was around $3.8bn (around 70 per cent of annual profits). Since it is generally agreed that the Gulf of Mexico spillage is much worse, it is therefore not inconceivable that the final bill will be even greater than the Guardian’s estimate. US senators now want the company to pay the wage bill of workers for rival companies who lose work as a result of the Gulf of Mexico drilling ban.

The snag is, if BP goes bust, or is banned from all projects in the US, as some predict, the company will have no way of paying its obligations. Of course, once money is in escrow it is safe, but the rest of the bill?

Now is the time for BP to respond. Forget about dividends. To pay them would be seen as an insult in the US. But it is time that BP said: Look, if you are going to demand all this money you need BP to be as profitable as ever. The quid per quo is this: we will pay our dues, providing you let us get on with being one of the world’s largest companies. (If you like, and to paraphrase a rather tactless remark from the company’s boss: We will pay our way, providing we can we have our corporate life back.)

Mind you, it is difficult to separate the truth from fiction on BP. On one hand we are being told the company took shortcuts. And once again the estimate of how much oil is spilling out into the ocean has been upped. It is quite embarrassing how BP’s own estimates have proven to be so woefully inaccurate. But on the other hand, on Capitol Hill, the House Energy Committee has slated Exxon Mobil Corp., ConocoPhillips, Chevron Corp. and Royal Dutch Shell Plc, saying their plans to deal with an oil leak are virtually the same as those prepared at BP.

‘There but for the grace of God, go I,’ or in other words, but for a stroke of luck that could have been me. We remain cynical of the view that BP has been singularly poor at preparing its safety procedures, and are of the opinion that the disaster could have happened to any of the oil companies. Whether the problem is that the procedures laid down by the authorities are not strict enough, or whether BP was not adhering to them, remains to be seen. We still hold to the view, one that is denied within the oil industry, that what we are really seeing is the inevitable consequence of demand for oil escalating, while supply remains stretched. There is plenty of black gold out there all right, but the environmental costs associated with exploiting it are growing.

Returning to the theme of how banks have been bailed out, yet BP forced to its knees, there is another point of view. It could be argued that the true cost of oil is external to the process of exploiting it. In short, there are costs associated with consuming oil that are not borne by BP. So perhaps if the oil companies really were to pay the true cost of exploiting oil, their profits may be a good deal lower.

So, rather than saying the US government is dragging a good company to the point of ruin, it might be more accurate to say that market failure to adequately allow for the true cost of fossil fuels may have created the impression of wealth creation, when the reality was quite different. In fact, it could be argued that the huge profits made by the oil companies are just as illusionary as the profits made by the banks during the good times, and which were then cancelled out when their bad practice caught up with them.

Today’s articles:
BP – the bill rises and rises
RICS points to rising supply
Japan – central bank finds the plan that UK needs
Greece and Spain see more angst
World Cup to boost economy

If the merger goes ahead, the resulting company’s oil and gas reserves would dwarf reserves at Exxon Mobil.

Reuters bases its piece on a note from Standard Chartered which said: “With widespread media speculation on a possible takeover of BP, we examine various scenarios for a PetroChina acquisition.” It added: “We expect a full dose of scepticism on this as a real-world proposition, although we argue for the persuasive economics… We expect China would support such a deal, while regulators in the United States may raise antitrust concerns. While we cannot rationalise any argument that the deal should be blocked on grounds of national interest, local politicians may take a different view.”

No doubt China, after its efforts to buy Rio Tinto went so horribly wrong, would welcome BP into its fold.

It seems unlikely, however, that Chinese ownership of BP, making Uncle Sam’s own Exxon Mobil look like a minnow, is quite what Barack Obama was planning.

It just goes to show, there are always surprising consequences when lynch mobs are let loose.