Florida Skips Offshore Oil Binge but Still Pays

June 12, 2010

By DAMIEN CAVE

KEY LARGO, Fla. — When rigs first started drilling for oil off Louisiana’s coast in the 1940s, Floridians scanned their shoreline, with its resorts and talcum-white beaches, and said, No thanks. Go ahead and drill, they told other Gulf Coast states; we’ll stick with tourism.

Now that invisible wall separating Florida from its neighbors has been breached. The spreading BP oil spill has already reached the Panhandle, and if it rides currents to the renowned reefs and fishing holes on both Florida coasts, the Sunshine State could become a vacation destination with the rules of a museum: Look, but don’t touch.

All because other states decided to rely on oil and gas, angry Floridians say; all because, in the water, there are no borders — only currents that can carry catastrophes hundreds of miles.

“There’s nothing we can do,” said Mike McLaughlin, 42, while stretching tanned shark skin on a dock here in the Keys. “We’re just sitting here, waiting for it all to disappear.”

Many Floridians, of course, say they are heartbroken for Louisiana, and they still reserve their most caustic criticism for BP and government regulators.

But with oil continuing to gush from a well off Louisiana, Florida has grown angrier at its oil-friendly neighbors. Gov. Charlie Crist said in an interview last week that “there’s a certain level of frustration” with the fact that Florida gets little if any financial benefit from offshore drilling, even though it shares the environmental risks.

On docks and beaches, many Floridians are less measured, and compare Louisiana to a neighbor with a bonfire that has set their block ablaze.

To some extent, it is a conflict set up by history. Louisiana and Florida may share the Gulf of Mexico, but they are essentially oil opposites.

Ever since World War II, when tar balls washed ashore across the gulf after German U-boats sank Allied oil tankers, Florida officials have held drilling at bay with state laws and lobbying in Washington to protect their state’s bustling tourism industry.

Louisiana, meanwhile, is an oil state through and through that discovered its first commercial deposits in 1901 and started drilling offshore in 1947.

State officials have never looked back, and the resulting divide between the two states is now economic as well as cultural: oil and gas contribute about $65 billion a year to the Louisiana economy, according to the state’s oil and gas association, while in Florida, tourism accounts for about $60 billion.

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SEC puts in new ‘circuit breaker’ rules

June 10, 2010

SEC puts into place new ‘circuit breaker’ rules to prevent repeat of May 6 stock market plunge

Marcy Gordon, AP Business Writer, On Thursday June 10, 2010, 5:44 pm EDT

WASHINGTON (AP) — Federal regulators on Thursday put in place new rules aimed at preventing a repeat of last month’s harrowing “flash crash” in the stock market.

Members of the Securities and Exchange Commission approved the rules, which call for U.S. stock exchanges to briefly halt trading of some stocks that make big swings.

The major exchanges will start putting the trading breaks into effect as early as Friday for six months. The New York Stock Exchange will begin Friday’s trading session with five stocks: EOG Resources Inc., Genuine Parts Co., Harley Davidson Inc., Ryder System Inc. and Zimmer Holdings Inc. The exchange will gradually add other stocks early next week, expecting to reach by Wednesday the full number that will be covered.

The Nasdaq stock market plans to have the new program fully in place on Monday.

The plan for the “circuit breakers” was worked out by the SEC and the major exchanges following the May 6 market plunge, which saw the Dow Jones industrials lose nearly 1,000 points in less than a half-hour.

Under the new rules, trading of any Standard & Poor’s 500 stock that rises or falls 10 percent or more in a five-minute period will be halted for five minutes. The “circuit breakers” would be applied if the price swing occurs between 9:45 a.m. and 3:35 p.m. Eastern time. That’s almost the entire trading day. But it leaves out the final 25 minutes before the close — a period that often sees raging price swings, especially in recent weeks as the kind of volatility that marked the 2008 financial crisis returned.

The idea is for the trading pause to draw attention to an affected stock, establish a reasonable market price and resume trading “in a fair and orderly fashion,” the SEC said.

On May 6, about 30 stocks listed in the S&P 500 index fell at least 10 percent within five minutes. The drop briefly wiped out $1 trillion in market value as some stocks traded as low as a penny.

The disruption “illustrated a sudden, but temporary, breakdown in the market’s price-setting function when a number of stocks and (exchange-traded funds) were executed at clearly irrational prices,” SEC Chairman Mary Schapiro said in a statement. “By establishing a set of circuit breakers that uniformly pauses trading in a given security across all venues, these new rules will ensure that all markets pause simultaneously and provide time for buyers and sellers to trade at rational prices.”

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Geithner, Paulson to address meltdown probe

May 6, 2010

Meltdown probe hears from bailout architects Paulson, Geithner on ‘shadow banking’

Daniel Wagner, AP Business Writer, On Thursday May 6, 2010, 12:57 am EDT

WASHINGTON (AP) — A special panel investigating the financial crisis is preparing to hear from two key architects of the government’s response: Former Treasury Secretary Henry Paulson and Treasury Secretary Timothy Geithner.

Geithner and Paulson will provide their perspectives on the so-called “shadow banking system” — a largely unregulated world of capital and credit markets outside of traditional banks. They will describe their roles in selling Bear Stearns (BSC) to JPMorgan Chase & Co. (JPM) after pressure from “shadow banking” companies made Bear the first major casualty of the crisis.

The pair will testify Thursday morning before the Financial Crisis Inquiry Commission, a bipartisan panel established by Congress to probe the roots of the financial crisis. It is the first time the panel has heard from either of the men who called the shots in late 2008 as the global financial system nearly collapsed.

The panel is looking at nonbank financial companies such as PIMCO and GE Capital that provide capital for loans to consumers and small businesses. When rumors spread in 2008 that Bear Stearns was teetering, these companies started what former Bear Stearns executives described Wednesday as a “run on the bank,” drawing so much of its capital that it could not survive.

Then-Treasury Secretary Paulson and Geithner, as president of the Federal Reserve Bank of New York, engineered Bear’s rescue. The New York Fed put up a $29 billion federal backstop to limit JPMorgan’s future losses on Bear Stearns’ bad investments.

Bear Stearns was the first Wall Street bank to blow up. Its demise foreshadowed the cascading financial meltdown in the fall of that year.

The panel is investigating the roots of the crisis that plunged the country into the most severe recession since the 1930s and brought losses of jobs and homes for millions of Americans.

In earlier testimony before the House Committee on Oversight and Government Reform, Paulson defended his response to the economic crisis as an imperfect but necessary rescue that spared the U.S. financial market from total collapse.

“Many more Americans would be without their homes, their jobs, their businesses, their savings and their way of life,” he said in testimony prepared for that hearing.

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U.S. bailout program increased moral hazard: watchdog

October 21, 2009

Wed Oct 21, 2009 1:30am EDT
By David Lawder

WASHINGTON (Reuters) – The U.S. government’s $700 billion financial bailout program has increased moral hazard in the markets by infusing capital into banks that caused the financial crisis, a watchdog for the program said on Wednesday.

The special inspector general for the U.S. Treasury’s Troubled Asset Relief Program (TARP) said the plan put in place a year ago was clearly influencing market behavior, and he repeated that taxpayers may never recoup all their money.

The bailout fund may have helped avert a financial system collapse but it could reinforce perceptions the government will step in to keep firms from failing, the quarterly report from inspector general Neil Barofsky said.

He said there continued to be conflicts of interest around credit rating agencies that failed to warn of risks leading up to the financial crisis. The report added that the recent rebound in big bank stocks risked removing urgency of dealing with the financial system’s problems.

“Absent meaningful regulatory reform, TARP runs the risk of merely reanimating markets that had collapsed under the weight of reckless behavior,” the report said. “The firms that were ‘too big to fail’ last October are in many cases bigger still, many as a result of government-supported and -sponsored mergers and acquisitions.”

ANGER, CYNICISM, DISTRUST

The report cites an erosion of government credibility associated with a lack of transparency, particularly in the early handling of the program’s initial investments in large financial institutions.

“Notwithstanding the TARP’s role in bringing the financial system back from the brink of collapse, it has been widely reported that the American people view TARP with anger, cynicism and distrust. These views are fueled by the lack of transparency in the program,” the report said.

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Where’s the next boom? Maybe in `cleantech’

October 6, 2009

Energy breakthroughs could be the next big thing, but how many jobs can they generate?

By Jordan Robertson, AP Technology Writer
9:33 pm EDT, Tuesday October 6, 2009

SAN FRANCISCO (AP) — Our economy sure could use the Next Big Thing. Something on the scale of railroads, automobiles or the Internet — the kind of breakthrough that emerges every so often and builds industries, generates jobs and mints fortunes.

Silicon Valley investors are pointing to something called cleantech — alternative energy, more efficient power distribution and new ways to store electricity, all with minimal impact to the environment — as a candidate for the next boom.

And while no two booms are exactly alike, some hallmarks are already showing up.

Despite last fall’s financial meltdown, public and private investments are pouring in, fueling startups and reinvigorating established companies. The political and social climates are favorable. If it takes off, cleantech could seep into every part of the economy and our lives.

Some of the biggest booms first blossomed during recessions. The telephone and phonograph were developed during the depression of the 1870s. The integrated circuit, a milestone in electronics, was invented in the recessionary year of 1958. Personal computers went mainstream, spawning a huge industry, in the slumping early 1980s.

A year into the Great Recession, innovation isn’t slowing. This time, it’s better batteries, more efficient solar cells, smarter appliances and electric cars, not to mention all the infrastructure needed to support the new ways energy will be generated and the new ways we’ll be using it.

Yet for all the benefits that might be spawned by cleantech breakthroughs, no one knows how many jobs might be created — or how many old jobs might be cannibalized. It also remains to be seen whether Americans will clamor for any of its products.

Still, big bets are being placed. The Obama administration is pledging to invest $150 billion over the next decade on energy technology and says that could create 5 million jobs. This recession has wiped out 7.2 million.

And cleantech is on track to be the dominant force in venture capital investments over the next few years, supplanting biotechnology and software. Venture capitalists have poured $8.7 billion into energy-related startups in the U.S. since 2006.

That pales in comparison with the dot-com boom, when venture cash sometimes topped $10 billion in a single quarter. But the momentum surrounding clean energy is reminiscent of the Internet’s early days. Among the similarities: Although big projects are still dominated by large companies, the scale of the challenges requires innovation by smaller firms that hope to be tomorrow’s giants.

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Water worries threaten U.S. push for natural gas

October 1, 2009

Thu Oct 1, 2009 8:26am EDT

By Jon Hurdle

PAVILLION, Wyoming (Reuters) – Louis Meeks, a burly 59-year-old alfalfa farmer, fills a metal trough with water from his well and watches an oily sheen form on the surface which gives off a faint odor of paint.

He points to small bubbles that appear in the water, and a thin ring of foam around the edge.

Meeks is convinced that energy companies drilling for natural gas in this central Wyoming farming community have poisoned his water and ruined his health.

A recent report by the Environmental Protection Agency suggests he just might have a case — and that the multi-billion dollar industry may have a problem on its hands. EPA tests found his well contained what it termed 14 “contaminants of concern.”

It tested 39 wells in the Pavillion area this year, and said in August that 11 were contaminated. The agency did not identify the cause but said gas drilling was a possibility.

What’s happened to the water supply in Pavillion could have repercussions for the nation’s energy policies. As a clean-burning fuel with giant reserves in the United States, natural gas is central to plans for reducing U.S. dependence on foreign oil.

But aggressive development is drawing new scrutiny from residents who live near gas fields, even in energy-intensive states such as Wyoming, where one in five jobs are linked to the oil and gas industry which contributed more than $15 billion the state economy in 2007.

People living near gas drilling facilities in states including Pennsylvania, Colorado, New Mexico and Wyoming have complained that their water has turned cloudy, foul-smelling, or even black as a result of chemicals used in a drilling technique called hydraulic fracturing, or “fracking.”

The industry contends drilling chemicals are heavily diluted and injected safely into gas reservoirs thousands of feet beneath aquifers, so they will never seep into drinking water supplies.

“There has never been a documented case of fracking that’s contaminated wells or groundwater,” said Randy Teeuwen, a spokesman for EnCana Corp (ECA), Canada’s second-largest energy company, which operates 248 wells in the Pavillion and nearby Muddy Ridge fields.

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Wall Street’s Math Wizards Forgot a Few Variables

September 14, 2009

by Steve Lohr
Monday, September 14, 2009
The New York Times

In the aftermath of the great meltdown of 2008, Wall Street’s quants have been cast as the financial engineers of profit-driven innovation run amok. They, after all, invented the exotic securities that proved so troublesome.

But the real failure, according to finance experts and economists, was in the quants’ mathematical models of risk that suggested the arcane stuff was safe.

The risk models proved myopic, they say, because they were too simple-minded. They focused mainly on figures like the expected returns and the default risk of financial instruments. What they didn’t sufficiently take into account was human behavior, specifically the potential for widespread panic. When lots of investors got too scared to buy or sell, markets seized up and the models failed.

That failure suggests new frontiers for financial engineering and risk management, including trying to model the mechanics of panic and the patterns of human behavior.

“What wasn’t recognized was the importance of a different species of risk — liquidity risk,” said Stephen Figlewski, a professor of finance at the Leonard N. Stern School of Business at New York University. “When trust in counterparties is lost, and markets freeze up so there are no prices,” he said, it “really showed how different the real world was from our models.”

In the future, experts say, models need to be opened up to accommodate more variables and more dimensions of uncertainty.

The drive to measure, model and perhaps even predict waves of group behavior is an emerging field of research that can be applied in fields well beyond finance.

Much of the early work has been done tracking online behavior. The Web provides researchers with vast data sets for tracking the spread of all manner of things — news stories, ideas, videos, music, slang and popular fads — through social networks. That research has potential applications in politics, public health, online advertising and Internet commerce. And it is being done by academics and researchers at Google, Microsoft, Yahoo and Facebook.

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