$1.2 Quadrillion Derivatives Market Dwarfs World GDP

AOL Finance

One of the biggest risks to the world’s financial health is the $1.2 quadrillion derivatives market. It’s complex, it’s unregulated, and it ought to be of concern to world leaders that its notional value is 20 times the size of the world economy. But traders rule the roost — and as much as risk managers and regulators might want to limit that risk, they lack the power or knowledge to do so.

A quadrillion is a big number: 1,000 times a trillion. Yet according to one of the world’s leading derivatives experts, Paul Wilmott, who holds a doctorate in applied mathematics from Oxford University (and whose speaking voice sounds eerily like John Lennon’s), $1.2 quadrillion is the so-called notional value of the worldwide derivatives market. To put that in perspective, the world’s annual gross domestic product is between $50 trillion and $60 trillion.

To understand the concept of “notional value,” it’s useful to have an example. Let’s say you borrow $1 million to buy an apartment and the interest rate on that loan gets reset every six months. Meanwhile, you turn around and rent that apartment out at a monthly fixed rate. If all your expenses including interest are less than the rent, you make money. But if the interest and expenses get bigger than the rent, you lose.

You might be able to hedge this risk of a spike in interest rates by swapping that variable rate of interest for a fixed one. To do that you’d need to find a counter party who has an asset with a fixed rate of return who believed that interest rates were going to fall and was willing to swap his fixed rate for your variable one.

The actual cash amount of the interest rates swaps might be 1% of the $1 million debt, while that $1 million is the “notional” amount. Applying that same 1% to the $1.2 quadrillion derivatives market would leave a cash amount of the derivatives market of $12 trillion — far smaller, but still 20% of the world economy.

Getting a Handle on Derivatives Risk

How big is the risk to the world economy from these derivatives? According to Wilmott, it’s impossible to know unless you understand the details of the derivatives contracts. But since they’re unregulated and likely to remain so, it is hard to gauge the risk.

But Wilmott gives an example of an over-the-counter “customized” derivative that could be very risky indeed, and could also put its practitioners in a position of what he called “moral hazard.” Suppose Bank 1 (B1) and Bank 2 (B2) decide to hedge against the risk that Bank 3 (B3) and Bank 4 (B4) might fail to repay their debt to B1 and B2. To guard against that, B1 and B2 might hedge the risk through derivatives.

In so doing, B1 and B2 might buy a credit default swap (CDS) on B3 and B4 debt. The CDS would pay B1 and B2 if B3 and B4 failed to repay their loan. B1 and B2 might also bet on the decline in shares of B3 and B4 through a short sale.

At that point, any action that B1 and B2 might take to boost the odds that B3 and B4 might default would increase the value of their derivatives. That possibility might tempt B1 and B2 to take actions that would boost the odds of failure for B3 and B4. As I wrote back in September 2008 on DailyFinance’s sister site, BloggingStocks, this kind of behavior — in which hedge funds pulled their money out of banks whose stock they were shorting — may have contributed to the failures of Bear Stearns and Lehman Brothers.

It’s also the sort of conduct that makes it extremely difficult to estimate the risk of the derivatives market.

How Positive Feedback Loops Crash Markets

Another kind of market conduct that makes markets volatile is what Wilmott calls positive and negative feedback loops. These relatively bland-sounding terms mask some really scary behavior for investors who are not clued into it. Wilmott argues that a positive feedback loop contributed to the 22.6% crash in the Dow back in October 1987.

In the 1980s, a firm run by some former academics came up with the idea of portfolio insurance.

Their idea was that if investors are worried about their assets losing value, they can buy puts — the option to sell their investments at pre-determined prices. They can sell everything — which would be embarrassing if the market then started to rise — or they could sell a fixed proportion of their portfolio depending on the percentage decline in a particular stock market index.

This latter idea is portfolio insurance. If the Dow, for example, fell 3%; it might suggest that investors should sell 20% of their portfolio. And if the Dow fell 20%, it would indicate that investors should sell 100% of their portfolio.

That positive feedback loop — in which a stock price decline leads to more selling — boosts market volatility. Portfolio insurance causes more investors to sell as the market declines by, say 3%, which causes an even deeper plunge in the value of investors’ holdings. And that deeper decline leads to more selling. Before you know it, many investors are selling everything.

The portfolio insurance firm started off with $5 billion, but as its reputation spread, it ended up managing $50 billion. In 1987, that was a lot of money. So when that positive feedback loop got going, it took the Dow down 22.6% in a day.

The big problem back then was the absence of a sufficient number of traders using a negative feedback loop strategy. With a negative feedback loop, a trader would sell stocks as they rose and buy them as they declined. With a negative feedback loop strategy, volatility would be far lower.

Unfortunately, data on how much money has been going into negative and positive feedback loop strategies is not available. Therefore, it’s hard to know how the positive feedback loops have gained such a hold on the market.

But it is not hard to imagine that if a particular investor made huge amounts of money following a positive feedback loop strategy, other investors would hear about it and copy it. Moreover, the way traders get compensated suggests that it’s better for them to take more and more risk to replicate what their peers are doing.

Traders Make More Money By Following the Pack

There is a clear economic incentive for traders to follow what their peers are doing. According to Wilmott, to understand why, it helps to imagine a simplified example of a trading floor. Picture yourself as a new college graduate joining a bank’s trading floor with 100 traders. Those 100 traders each trade $10 million: They “win” if a coin toss lands on heads and “lose” if it lands on tails. But now imagine you’ve come up with a magic coin that has a 75% chance of landing on heads — you can make a better bet than the other 100 traders with their 50-50 coin.

You might think that the best strategy for you would be to bet your $10 million on that magic coin. But you’d be wrong. According to Wilmott, if the magic coin lands on a head but the other 100 traders flip tails, the bank loses $1 billion while you get a relatively paltry $10 million.

The best possible outcome for you is a 37.5% chance that everyone makes money (the 75% chance of you tossing heads multiplied by the 50% chance of the other traders getting a head). If instead, you use the same coin as everyone else on the floor, the probability of everyone getting a bonus rises to 50%.

When Traders Say ‘Jump,’ Risk Managers Ask ‘How High?’

Traders are a huge source of profit on Wall Street these days and they have an incentive to bet together and to bet big. According to Wilmott, traders get a bonus based on the one-year profits of those on their trading floor. If the trading floor makes big money, all the traders get a big bonus. And if it loses money, they get no bonus — but at least they don’t have to repay their capital providers for the losses.

Given that bonus structure, a trader is always better off risking $1 billion than $1 million. So if the trader, who is the king of the hill at the bank, asks a lowly risk manager to analyze how much risk the trader is taking, that risk manager is on the spot. If the risk manager comes back with a risk level that limits how big a bet the trader can take, the trader will demand that the risk manager recalculate the risk level lower so the trader can take the bigger bet.

Traders also manipulate their bonuses by assuming the existence of trading profits before they are actually realized. This happens when traders get involved with derivatives that will not unwind for 20 years.

Although the profits or losses on that trade have not been realized at the end of the first year, the bank will make an assumption about whether that trade made or lost money each year. Given the power traders wield, they can make the number come out positive so they can receive a hefty bonus — even though it is too early to tell what the real outcome of the trade will be.

How Trader Incentives Caused the CDO Bubble

Wilmott imagines that this greater incentive to follow the pack is what happened when many traders were piling into collateralized debt obligations. In Wilmott’s view, CDO risk managers who had analyzed a future scenario in which housing prices fell and interest rates rose would have concluded that the CDOs would become worthless under that scenario. He imagines that when notified of that possible outcome, CDO traders would have demanded that the risk managers shred that nasty scenario so they could keep trading more CDOs.

Incidentally, the traders who profited by going against the CDO crowd were lone wolves whose compensation did not depend on following the trading floor pack. This reinforces the idea that big bank compensation policies drive dangerous behavior that boosts market volatility.

What You Don’t Understand, You Can’t Properly Regulate

Wilmott believes that derivatives represent a risk of unknown proportions. But unless there is a change to trader compensation policies — one which would force traders to put their compensation at risk for the life of the derivative — then this risk could remain difficult to manage.

Unfortunately, he thinks that regulators aren’t in a good position to assess the risks of derivatives because they don’t understand them. Wilmott offers training in risk management. While traders and risk managers at banks and hedge funds have taken his course, regulators so far have not.

And if regulators don’t understand the risks in derivatives, chances are great that Congress does not understand them either.

BP’s Top Kill Procedure fails as Coast Guard Blocks Media Access

Natural News

BP officials have announced today that the “top kill” effort to stop the Gulf oil leak has failed. Unanticipated problems doomed the project, which involved trying to pump tens of thousands of gallons of mud, shredded rubber tires and other “junk” into the hole to try to halt the outflow of oil.

At 6pm Saturday evening, BP officials announced the “top kill” effort had failed and now they were moving on to another plan (more below).

I am on site at the Gulf Coast right now, and while I haven’t reached the areas where oil is washing up on the beaches, I’m learning some interesting information nonetheless. In particular, finding a hotel room anywhere near New Orleans has become virtually impossible, as BP has rented out virtually every available hotel room from St. Charles, Louisiana all the way to Pensacola, Florida. (I am currently staying in a fleabag hotel that miraculously has internet access…)

But it raises the question: Where are all these people? I haven’t seen a single BP person anywhere, and I was out on some beaches today filming editorial segments for NaturalNews. I did see some small watercraft laying out protective barriers, but I didn’t see any BP people anywhere.

I’ll keep you posted on what we find tomorrow as we approach the beaches to the East of New Orleans.

Expect more oil for the next 10 weeks

Now that the top kill effort has failed, it means oil will keep spewing into the Gulf of Mexico until at least August. That’s when two “pressure release” wells are expected to be completed. The purpose of these two wells is to siphon off the oil from underneath the ocean bed, thereby releasing the pressure that’s currently pushing crude oil out of the existing hole under the doomed Deepwater Horizon rig.

This “plan C” effort remains extremely risky, of course. There’s no guarantee it will work at all. And if it fails, this “volcano of oil” could continue to pollute the Earth’s oceans for years. This could, in fact, be the global killer event I warned about in an earlier story about this BP oil spill. (http://www.naturalnews.com/028805_G…)

We could be looking at a global-scale environmental catastrophe that destroys virtually all marine life in the Gulf of Mexico and takes a century to fully recover. It’s really that bad. If they can’t stop this volcano of oil in the next week, we could be looking at the single most destructive environmental catastrophe ever to strike our planet since the asteroid that wiped out the dinosaurs.

Get ready for more chemicals

In the mean time, now that the top kill effort has failed, BP has announced it is resuming the spraying of chemical dispersants into the massive oil plumes that remain deep under the surface of the Gulf of Mexico water. This means more chemicals that will kill more forms of marine life throughout the Gulf.

But it’s not just aquatic life that’s being threatened by these chemicals: BP workers are increasingly being sent to the hospital complaining of symptoms like vomiting, dizziness, difficult breathing and others. The obvious cause of such symptoms is the huge amount of crude oil bubbling up to the surface (some of which evaporates into the air) along with the massive injection of chemical dispersants into the waters (some of which also evaporates). CNN is reporting that BP claims it is monitoring air quality, but so far BP has not gone public with any air quality test results.

None of the cleanup workers have been outfitted with chemical masks that might protect them from the volatile chemicals now present in the Gulf waters. Yet CNN is reporting that the warning label on the chemical product made by NALCO states: “Avoid breathing vapor.”

The EPA, meanwhile, remains silent on this whole issue. Remember: It is the EPA that ordered BP to stop using its selected brand of chemical dispersant, but BP utterly ignored the EPA and continues to dump that very same chemical into the Gulf of Mexico right now.

A chemical attack on America

What we are watching here, folks, is very nearly a chemical attack on America by BP and the oil industry. It’s hard to say what’s worse: The oil or the chemical dispersants. In fact, no one knows the answer to that question, and it can’t even be studied by scientists because the disaster keeps growing by the day.

This is one environmental catastrophe that just keeps getting worse, and the cost to the marine ecosystem is incalculable. And that’s not to even mention the economic cost to the region and all the people who depend on life in the Gulf of Mexico for their own livelihoods. Their lives are now being destroyed by this oil drilling catastrophe.

If there’s one lesson that comes from all this, it is a reminder of the immense value Mother Nature provides us each and every day at no charge. The VALUE of a healthy ocean is incalculable. And the COST of killing it may be more than what human civilization can bear.

I suppose this resolves the whole question of what’s more important: The environment or the economy? As we’re rudely discovering today, the economy cannot exist without protecting the environment first.

“There’s Another Oil Leak, Much Bigger, 5 to 6 Miles Away”

Washington’s Blog

Another never discussed oil leak exists below the Gulf of Mexico's water.

Matt Simmons was an energy adviser to President George W. Bush, is an adviser to the Oil Depletion Analysis Centre, and is a member of the National Petroleum Council and the Council on Foreign Relations. Simmon is chairman and CEO of Simmons & Company International, an investment bank catering to oil companies.

Simmons told Dylan Ratigan that “there’s another leak, much bigger, 5 to 6 miles away” from the leaking riser and blowout preventer which we’ve all been watching on the underwater cameras:

And as 60 Minutes reports:

[Mike Williams, the chief electronics technician on the Deepwater Horizon, and one of the last workers to leave the doomed rig] said they were told it would take 21 days; according to him, it actually took six weeks.

With the schedule slipping, Williams says a BP manager ordered a faster pace.

“And he requested to the driller, ‘Hey, let’s bump it up. Let’s bump it up.’ And what he was talking about there is he’s bumping up the rate of penetration. How fast the drill bit is going down,” Williams said.

Williams says going faster caused the bottom of the well to split open, swallowing tools and that drilling fluid called “mud.”

“We actually got stuck. And we got stuck so bad we had to send tools down into the drill pipe and sever the pipe,” Williams explained.

That well was abandoned and Deepwater Horizon had to drill a new route to the oil. It cost BP more than two weeks and millions of dollars.

“We were informed of this during one of the safety meetings, that somewhere in the neighborhood of $25 million was lost in bottom hole assembly and ‘mud.’ And you always kind of knew that in the back of your mind when they start throwing these big numbers around that there was gonna be a push coming, you know? A push to pick up production and pick up the pace,” Williams said.

Asked if there was pressure on the crew after this happened, Williams told Pelley, “There’s always pressure, but yes, the pressure was increased.”

But the trouble was just beginning: when drilling resumed, Williams says there was an accident on the rig that has not been reported before. He says, four weeks before the explosion, the rig’s most vital piece of safety equipment was damaged.

Ten Things Dirtier than BP’s Oil Spill

Daniela Perdomo, Alter Net

Transocean

Transocean making $ 270 millions off the oil spill.

It’s been 37 days since BP’s offshore oil rig, Deepwater Horizon, exploded in the Gulf of Mexico. Since then, crude oil has been hemorrhaging into ocean waters and wreaking unknown havoc on our ecosystem — unknown because there is no accurate estimate of how many barrels of oil are contaminating the Gulf.

Though BP officially admits to only a few thousand barrels spilled each day, expert estimates peg the damage at 60,000 barrels or over 2.5 million gallons daily. (Perhaps we’d know more if BP hadn’t barred independent engineers from inspecting the breach.) Measures to quell the gusher have proved lackluster at best, and unlike the country’s last big oil spill — Exxon-Valdez in 1989 — the oil is coming from the ground, not a tanker, so we have no idea how much more oil could continue to pollute the Gulf’s waters.

The Deepwater Horizon disaster reminds us what can happen — and will continue to happen — when corporate malfeasance and neglect meet governmental regulatory failure.

The corporate media is tracking the disaster with front-page articles and nightly news headlines every day (if it bleeds, or spills, it leads!), but the under-reported aspects to this nightmarish tale paint the most chilling picture of the actors and actions behind the catastrophe. In no particular order, here are 10 things about the BP spill you may not know and may not want to know — but you should.

1. Oil rig owner has made $270 million off the oil leak

Transocean Ltd., the owner of the Deepwater Horizon rig leased by BP, has been flying under the radar in the mainstream blame game. The world’s largest offshore drilling contractor, the company is conveniently headquartered in corporate-friendly Switzerland, and it’s no stranger to oil disasters. In 1979, an oil well it was drilling in the very same Gulf of Mexico ignited, sending the drill platform into the sea and causing one of the largest oil spills by the time it was capped… nine months later.

This experience undoubtedly influenced Transocean’s decision to insure the Deepwater Horizon rig for about twice what it was worth. In a conference call to analysts earlier this month, Transocean reported making a $270 million profit from insurance payouts after the disaster. It’s not hard to bet on failure when you know it’s somewhat assured.

2. BP has a terrible safety record

BP has a long record of oil-related disasters in the United States. In 2005, BP’s Texas City refinery exploded, killing 15 workers and injuring another 170. The next year, one of its Alaska pipelines leaked 200,000 gallons of crude oil. According to Public Citizen, BP has paid $550 million in fines. BP seems to particularly enjoy violating the Clean Air and Clean Water Acts, and has paid the two largest fines in the Occupational Safety and Health Administration’s history. (Is it any surprise that BP played a central, though greatly under-reported, role in the failure to contain the Exxon-Valdez spill years earlier?)

With Deepwater Horizon, BP didn’t break its dismal trend. In addition to choosing a cheaper — and less safe — casing to outfit the well that eventually burst, the company chose not to equip Deepwater Horizon with an acoustic trigger, a last-resort option that could have shut down the well even if it was damaged badly, and which is required in most developed countries that allow offshore drilling. In fact, BP employs these devices in its rigs located near England, but because the United States recommends rather than requires them, BP had no incentive to buy one — even though they only cost $500,000.

SeizeBP.org estimates that BP makes $500,000 in under eight minutes.

3. Oil spills are just a cost of doing business for BP

According to the Harte Research Institute for Gulf of Mexico Studies, approximately $1.6 billion in annual economic activity and services are at risk as a result of the Deepwater Horizon disaster. Compare this number — which doesn’t include the immeasurable environmental damages — to the current cap on BP’s liability for economic damages like lost wages and tourist dollars, which is $75 million. And compare that further to the first-quarter profits BP posted just one week after the explosion: $6 billion.

BP’s chief executive, Tony Hayward, has solemnly promised that the company will cover more than the required $75 million. On May 10, BP announced it had already spent $350 million. How fantastically generous of a company valued at $152.6 billion, and which makes $93 million each day.

The reality of the matter is that BP will not be deterred by the liability cap and pity payments doled out to a handful of victims of this disaster because they pale in comparison to its ghastly profits. Indeed, oil spills are just a cost of doing business for BP.

This is especially evident in a recent Citigroup analyst report prepared for BP investors: “Reaction to the Gulf of Mexico oil leak is a buying opportunity.”

4. The Interior Department was at best, neglectful, and at worst, complicit

It’s no surprise BP is always looking out for its bottom line — but it’s at least slightly more surprising that the Interior Department, the executive department charged with regulating the oil industry, has done such a shoddy job of preventing this from happening.

Ten years ago, there were already warnings that the backup systems on oil rigs that failed on Deepwater Horizon would be a problem. The Interior Department issued a “safety alert” but then left it up to oil companies to decide what kind of backup system to use. And in 2007, a government regulator from the same department downplayed the chances and impact of a spill like the one that occurred last month: “[B]lowouts are rare events and of short duration, potential impact to marine water quality are not expected to be significant.”

The Interior Department’s Louisiana branch may have been particularly confused because it appears it was closely fraternizing with the oil industry. The Minerals Management Service, the agency within the department that oversees offshore drilling, routinely accepted gifts from oil companies and even considered itself a part of the oil industry, rather than part of a governmental regulatory agency. Flying on oil executives’ private planes was not rare for MMS inspectors in Louisiana, a federal report released Tuesday says. “Skeet-shooting contests, hunting and fishing trips, golf tournaments, crawfish boils, and Christmas parties” were also common.

Is it any wonder that Deepwater Horizon was given a regulatory exclusion by MMS?

It gets worse. Since April 20, when the Deepwater Horizon oil rig exploded, the Interior Department has approved 27 new permits for offshore drilling sites. Here’s the kicker: Two of these permits are for BP.

But it gets better still: 26 of the 27 new drilling sites have been granted regulatory exemptions, including those issued to BP.

5. Clean-up prospects are dismal

The media makes a lot of noise about all the different methods BP is using to clean up the oil spill. Massive steel containment domes were popular a few weeks ago. Now everyone is touting the “top kill” method, which involves injecting heavy drilling fluids into the damaged well.

But here’s the reality. Even if BP eventually finds a method that works, experts say the best cleanup scenario is to recover 20 percent of the spilled oil. And let’s be realistic: only 8 percent of the crude oil deposited in the ocean and coastlines off Alaska was recovered in the Exxon-Valdez cleanup.

Millions of gallons of oil will remain in the ocean, ravaging the underwater ecosystem, and 100 miles of Louisiana coastline will never be the same.

6. BP has no real cleanup plan

Perhaps because it knows the possibility of remedying the situation is practically impossible, BP has made publicly available its laughable “Oil Spill Response Plan” which is, in fact, no plan at all.

Most emblematic of this farcical plan, BP mentions protecting Arctic wildlife like sea lions, otters and walruses (perhaps executives simply lifted the language from Exxon’s plan for its oil spill off the coast of Alaska?). The plan does not include any disease-preventing measures, oceanic or meteorological data, and is comprised mostly of phone numbers and blank forms. Most importantly, it includes no directions for how to deal with a deep-water explosion such as the one that took place last month.

The whole thing totals 600 pages — a waste of paper that only adds insult to the environmental injury BP is inflicting upon the world with Deepwater Horizon.

7. BP is sequestering survivors and taking away their right to sue

With each hour, the economic damage caused by Deepwater Horizon continues to grow. And BP knows this.

So while it outwardly is putting on a nice face, even pledging $500 million to assess the impacts of the spill, it has all the while been trying to ensure that it won’t be held liable for those same impacts.

Just after the Deepwater explosion, surviving employees were held in solitary confinement, while BP flacks made them waive their rights to sue. BP then did the same with fishermen it contracted to help clean up the spill though the company now says that was nothing more than a legal mix-up.

If there’s anything to learn from this disaster, it’s that companies like BP don’t make mistakes at the expense of others. They are exceedingly deliberate.

8. BP bets on risk to employees to save money — and doesn’t care if they get sick

When BP unleashed its “Beyond Petroleum” re-branding/greenwashing campaign, the snazzy ads featured smiley oil rig workers. But the truth of the matter is that BP consistently and knowingly puts its employees at risk.

An internal BP document shows that just before the prior fatal disaster — the 2005 Texas City explosion that killed 15 workers and injured 170 — when BP had to choose between cost-savings and greater safety, it went with its bottom line.

A BP Risk Management memo showed that although steel trailers would be safer in the case of an explosion, the company went with less expensive options that offered protection but were not “blast resistant.” In the Texas City blast, all of the fatalities and most of the injuries occurred in or around these trailers.

Although BP has responded to this memo by saying the company culture has changed since Texas City, 11 people died on the Deepwater Horizon when it blew up. Perhaps a similar memo went out regarding safety and cost-cutting measures?

Reports this week stated that fishermen hired by BP for oil cleanup weren’t provided protective equipment and have now fallen ill. Hopefully they didn’t sign waivers.

9. Environmental damage could even include a climatological catastrophe

It’s hard to know where to start discussing the environmental damage caused by Deepwater Horizon. Each day will give us a clearer picture of the short-term ecological destruction, but environmental experts believe the damage to the Gulf of Mexico will be long-term.

In the short-term, environmentalists are up in arms about the dispersants being used to clean up the oil slick in the Gulf. Apparently, the types BP is using aren’t all that effective in dispersing oil, and are pretty high in toxicity to marine fauna such as fish and shrimp. The fear is that what BP may be using to clean up the mess could, in the long-term, make it worse.

On the longer-term side of things, there are signs that this largest oil drilling catastrophe could also become the worst natural gas and climate disaster. The explosion has released tremendous amounts of methane from deep in the ocean, and research shows that methane, when mixed with air, is the most powerful (read: terrible) greenhouse gas — 26 times worse than carbon-dioxide.

Our warming planet just got a lot hotter.

10. No one knows what to do and it will happen again

The very worst part about the Deepwater Horizon calamity is that nobody knows what to do. We don’t know how bad it really is because we can’t measure what’s going on. We don’t know how to stop it — and once we do, we won’t know how to clean it up.

BP is at the helm of the recovery process, but given its corporate track record, its efforts will only go so far — it has a board of directors and shareholders to answer to, after all. The U.S. government, the only other entity that could take over is currently content to let BP hack away at the problem. Why? Because it probably has no idea what to do either.

Here’s the reality of the matter — for as long as offshore drilling is legal, oil spills will happen. Coastlines will be decimated, oceans destroyed, economies ruined, lives lost. Oil companies have little to no incentive to prevent such disasters from happening, and they use their money to buy government regulators’ integrity.

Deepwater Horizon is not an anomaly — it’s the norm.

Gulf of Mexico Oil Volcano gushes 3.4 million gallons of oil a day

NaturalNews.com

The situation is actually much worse than we’re being led to believe, there could be worldwide catastrophic consequences. If it’s truebp that millions upon millions of gallons of crude oil are flooding the Gulf with no end in sight, the massive oil slicks being created could make their way into the Gulf Stream currents, which would carry them not only up the East Coast but around the world where they could absolutely destroy the global fishing industries.”

Now, barely one week later, it turns out that the oil slick is FAR worse than what we were being told.

USA Today now reports:

Researchers warned Sunday that miles-long underwater plumes of oil from the spill could poison and suffocate sea life across the food chain, with damage that could endure for a decade or more. (http://www.usatoday.com/news/nation…)

That same article also explained:

“Researchers have found more underwater plumes of oil than they can count from the blown-out well, said Samantha Joye, a professor of marine sciences at the University of Georgia. She said careful measurements taken of one plume showed it stretching for 10 miles, with a 3-mile width.”

The Christian Science Monitor also reports now that as much as 3.4 million gallons of oil may be leaking into the Gulf every day!

“The oil that can be seen from the surface is apparently just a fraction of the oil that has spilled into the Gulf of Mexico since April 20, according to an assessment the National Institute for Undersea Science and Technology. Significant amounts of oil are spreading at various levels throughout the water column… Scientists looking at video of the leak, suggest that as many as 3.4 million gallons of oil could be leaking into the Gulf every day – 16 times more than the current 210,000-gallon-a-day estimate, according to the Times.”(http://www.csmonitor.com/USA/2010/0…)

The New York Times also chimed in on the topic over the weekend with some absolutely shocking (and disturbing) revelations:

“Scientists are finding enormous oil plumes in the deep waters of the Gulf of Mexico, including one as large as 10 miles long, 3 miles wide and 300 feet thick in spots. The discovery is fresh evidence that the leak from the broken undersea well could be substantially worse than estimates that the government and BP have given.

Scientists studying video of the gushing oil well have tentatively calculated that it could be flowing at a rate of 25,000 to 80,000 barrels of oil a day. The latter figure would be 3.4 million gallons a day. But the government, working from satellite images of the ocean surface, has calculated a flow rate of only 5,000 barrels a day.” (http://www.nytimes.com/2010/05/16/u…)

In other words, while the government has been telling us the leak is only 5,000 barrels a day, the true volume could be more like 80,000 barrels a day.

Wiping out the Gulf

It hardly needs to be stated that 80,000 barrels of oil a day leaking into the Gulf of Mexico could destroy virtually all marine life in the region.

Oxygen levels have already fallen by 30 percent in waters near the oil. When water loses its oxygen content, it quickly becomes a so-called “dead zone” because marine species simply can’t live there anymore. (Fish and other aquatic creatures need oxygen to live, obviously.)

With this volcano of oil still erupting through the ocean floor, we could be witnessing the mass-murder of virtually all marine life in the Gulf of Mexico.

And yet we’re faced with a virtual blackout of truly accurate news on the event. Both the oil industry and the Obama administration are desperately trying to limit the videos, photos and stories about the spill, spinning everything to make it seem like it’s not really much of a problem at all.

It’s much like the media coverage of the War in Iraq, where all video footage had to be vetted by the Pentagon before being released to the public. Remember the uproar over the leaked photos of coffins draped in American flags? That’s what the Obama administration no doubt hopes to avoid by suppressing photos of dead dolphins and sea birds in the Gulf of Mexico.

The truth, as usual, is being suppressed. It’s just too ugly for the public to see.

Of course, the truth has always been suppressed in the oil industry. Even the inspections on this particular oil rig were, well, rigged. It turns out the rig wasn’t even inspected on schedule (http://news.yahoo.com/s/ap/20100516…).

It also turns out that the Obama administration actually gave the Deepwater Horizon an award for its history of safety! That was before the whole thing literally blew up in their faces.

Corruption in Washington leads to catastrophe

The oil industry, you see, is just like every other industry that’s regulated by the federal government: It has a cozy relationship with regulators.

It’s the same story with Big Pharma and the FDA, or the meat industry and the USDA. Wall Street and the SEC. Every industry that’s regulated eventually turns the tables on its regulators and ends up rewriting the rules for its own benefit.

The oil industry has been able to get away with so many exemptions and loopholes that the regulatory environment is now lenient at best. The Deepwater Horizon, for example, was given all sorts of exemptions to engage in risky drilling operations without following proper safety procedures. And who granted it these exemptions? The U.S. federal government, of course!

So now the U.S. government is just as guilty as the oil industry in this mass-murder of life in the Gulf of Mexico. It is the government that allowed the series of events that led to catastrophe in the first place. And now, this catastrophe could lead to a near-total wipeout of marine life throughout the Gulf (and possibly beyond).

In a worst-case scenario, this could destroy some percentage of life in oceans all around the world. It could be the one final wound to Mother Earth who bleeds her black blood into the oceans for ten thousand years, destroying life as we know it on this planet.

All for profit, of course. Let nothing stand in the way of another billion dollars in oil company profits! (Regulators? Bah!)

Collusion between government and industry always leads to disaster

I hope BP can find a way to suction some of that oil out of the ocean. If they can manage such a solution, they should then turn around and dump the entire slick across the landscape of Washington D.C. to coat all the bureaucrats in the black slimy shame they no doubt deserve. This isn’t about some random accident, you see: It’s about a failure of federal regulators to enforce safe drilling practices.

The fishing industries in and around the Gulf of Mexico could be devastated for decades. The diversity of life in the marine ecosystems there may soon find itself on the verge of collapse. And still there is no real solution for stopping the volcano of oil that continues to gush out of this gaping wound in the Earth herself.

I can only wonder what kind of hare-brained ideas these oil men are coming up with now to stop the flow. A nuke bomb expert has reportedly been sent to the area by the Obama administration as part of some sort of “dream team” of super smart people to find a solution.

But it begs the question: If we were so smart, why are we still running the world on fossil fuels in the first place? There’s enough sunlight energy striking the deserts of Arizona to power the entire nation indefinitely! Free energy technology continues to be suppressed in large part by oil company interests (and the arrogant scientific community), and renewable energy technology has received virtually no government support whatsoever.

More…