And you thought money was fungible

Posted by Marc Hodak on June 17, 2010 under Irrationality, Reporting on pay | Be the First to Comment

I’m still trying to distill the meaning of the following lead:

BP PLC, under intense legal and political pressure from President Barack Obama, agreed Wednesday to put $20 billion into a fund to compensate victims of the Gulf oil spill, and said it would cancel shareholder dividends for the first three quarters of this year to offset that cost.

Here is what I’ve came up with so far:  Nothing of economic consequence actually happened.

This is clearly posing as a story of economic consequence for BP, but for it is of relatively little consequence to the company how any portion of the damages actually gets distributed, only what the total damages will be, which this agreement appears to not change at all.  As noted in the post below, it is of no consequence to BP’s shareholders whether the cash left over after damages gets paid out as dividends, or gets capitalized into the share price.  All that matters to them is what the total damages will be, which this agreement appears to not change at all.

There are political consequences, but I’m not shocked that the MSM didn’t write its story around that:

The Obama administration has personally taken on distribution of $20 billion of the total damages that BP has already pledged to honor instead of letting that sum be distributed via time-tested principles under the rule of law.

If the story were written this way, though, it might not make the victims on the Gulf Coast or their insurers feel as good.

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