Monday, May 17, 2010

BP is incompetent. The facts are even worse than you imagine. BOP valve was leaking, defective, installed wrong, and too weak to function in the first

Climate Progress

Stupak stunner: Oil well’s blowout preventer had leaks, dead battery, design flaws, “How can a device that has 260 failure modes be considered fail-safe?”

Coast Guard Captain slams industry "self-certification" of BOP: "Manufactured by industry, installed by industry, with no government witnessing oversight of the installation or the construction." And the rig flew the Marshall Island flag to further escape U.S. oversight



A senior House Democrat said that the blowout preventer that failed to stop an oil leak in the Gulf of Mexico had a dead battery in its control pod, leaks in its hydraulic system, a “useless” test version of one of the devices that was supposed to close the flow of oil and a cutting tool that wasn’t strong enough to shear through joints that made up 10 percent of the drill pipe.

That’s the lede of the WashPost coverage on the devastating opening statement by Rep. Bart Stupak (D-MI) in a hearing of the House Energy and Commerce Committee.

It simply becomes more and more astounding that BP ever called this blowout disaster ‘inconceivable,’ ‘unprecedented,’ and unforeseeable. It was quite literally an accident waiting to happen. A 30-second video of the undersea volcano finally released by BP is above.

You can read comments by the Coast Guard on how the rig minimizes regulatory oversight in the WP piece and also at Nola.com, which reports:



The Coast Guard inspections follow up on the monitoring done by the classification society for the flag state. Gifford said the Deepwater Horizon used the Marshall Islands’ flag as a “flag of convenience” so it could comply with that country’s standards, and not the U.S. regulations.

The Nola.com story relates more shocking testimony from the Coast Guard and MMS:

Summarizing testimony by Mike Saucier, a regional supervisor for field operations for the federal Minerals Management Service, which oversees offshore drilling, Capt. Hung Nguyen said:

“So, MMS approves the design of the well, but they don’t check what type of pipe is used. And we have a study some time ago about whether a shear ram would cut a certain pipe (to shut off a well in an emergency), but we don’t know what was installed here. I don’t understand that.”

The testimony from Saucier established that the government agency he works for doesn’t do any certification of blowout preventers, the massive devices that are supposed to be the final cut off of an out-of-control well. Saucier said most of the action MMS has taken to control blowout preventers has been through “notices to lessees,” letters that go to drill operators but are not enforceable.

“We have self-certification of critical equipment and safety notices that are not enforceable…” Nguyen said, digesting the testimony before tailing off, pursing his lips and moving on to his next question.

The panel of three Coast Guard officials and three MMS representatives also appeared disappointed to learn from Saucier that tighter rules for monitoring deepwater drilling safety systems were proposed nine years ago, but got lost in the shuffle and never were adopted.

Saucier said new rules were written in 2001 to require secondary control systems for blowout preventers, the stacks of valves and pistons on the seafloor that are supposed to shut a well in an emergency, but MMS higher-ups in Washington never approved the regulations.

“As far as I know, they’re still up in headquarters,” he said.

If the rules had been adopted, they may not have prevented the catastrophe at Deepwater Horizon.

Hmm. I wonder what former Halliburton CEO was in charge of U.S. oil policy in 2001.

Also worth noting, “Coast Guard regulations governing drilling on the Outer Continental Shelf have not been updated since 1996.”

Stupak points out that this is the third hearing he has held as chairman of Oversight and Investigations involving British Petroleum. Here are extended excerpts of his sobering opening statement:

Three years ago – almost to the day – this subcommittee held a hearing into British Petroleum’s disasters at Texas City and on the North Slope of Alaska. The 2005 Texas City refinery explosion resulted in the deaths of 15 workers and injured more than 170 people. As a result of that accident and BP’s failure to correct potential hazards faced by employees at Texas City, OSHA has twice slapped BP with record setting fines totaling more than $100 million. Several reports criticized management at the Texas City facility including BP’s own 2007 Report of the Management Accountability Project which stated “a culture that evolved over the years seemed to ignore risk, tolerated non-compliance and accepted incompetence.”

In March of 2006 BP discovered their pipeline on Alaska’s North Slope had spilled more than 200,000 gallons of oil on the tundra, making it the largest spill in North Slope history. Our hearings discovered that significant cost cutting measures resulted in decreased maintenance and inspections of the pipeline and BP’s management culture deterred individuals from raising safety concerns.

Since our last hearing BP has experienced continued problems on the North Slope

* September 29, 2008 an 8 inch high pressure gas line at the Y-Pad location “separated” sending 3 pieces of pipe to the tundra. One segment of the pipe landed 900 feet from the pipeline. Roughly 30 minutes later a second and unrelated incident occurred on the S Pad where there was a gas release.

* January 15, 2009 a isc cleaning pig became lodged and lost in a 34 inch Oil Transit Line during de-oiling allowing gas to pass around the pig and travel through Skid 50, to Pump Station 1 causing a significant venting of gas to the atmosphere and the complete shutdown of the Trans Alaska Pipeline for a period of time.

* October 10, 2009 at the Central Compressor Plant low pressure flare staging valves were stuck closed causing gas to travel to the backup low pressure flare valves, which activated causing the gas to vent to the atmosphere which could have caused an explosion.

* November 29, 2009 an 18 inch three-phase common line near the Lisburne Production Center carrying a mixture of crude oil, produced water and natural gas ruptured spraying its contents over an estimated 8,400 square feet area.

… The world is wondering what went wrong to allow explosive gas to shoot out of the drill pipe on the Deepwater Horizon causing the explosion. We heard Chairman Waxman discuss theories of what may have gone wrong in the well (down hole as they call it) and what went wrong on the rig. I would like to take a few minutes to discuss issues related to the blowout preventer (BOP) which was the “fail safe system” to cut off the flow of oil and gas to the rig.

In his testimony today, Lamar McKay, the President of BP America, says that blowout preventers are “intended to … be fail-safe.” But that didn’t happen. The blowout preventer used by the Deepwater Horizon rig failed to stop the flow of gas and oil, the rig exploded, and an enormous oil spill is now threatening the Gulf Coast.

We know that the blowout preventer, the BOP, did not properly engage. The BOP has multiple rams that are supposed to slam shut to pinch off any flow around the drill pipe and stop the flow of oil from the well. There are also shear rams in the BOP that are supposed to cut and seal the pipe to prevent oil and gas from flowing. The question we will ask is why did these rams fail?

Our investigation is at its early stages, but already we have uncovered at least four significant problems with the blowout preventer used on the Deepwater Horizon drill rig.

First, the blowout preventer apparently had a significant leak in a key hydraulic system. This leak was found in the hydraulic system that provides emergency power to the shear rams, which are the devices that are supposed to cut the drill pipe and seal the well.

I would like to put on the screen a document that the Committee received from BP. This document states: “leaks have been discovered in the BOP hydraulics system.”

The blowout preventer was manufactured by Cameron. We asked a senior official at Cameron what he knew about these leaks. He told us when the remote operating vehicles (ROVs) tried to operate the shear rams, they noticed a loss of pressure. They investigated this by injecting dye into the hydraulic fluid, which showed a large leak coming from a loose fitting, which was backed off several turns.

The Cameron official told us that he did not believe the leak was caused by the blowout because every other fitting in the system was tight.

We also asked about the significance of the leak. The Cameron official said it was one of several possible failure modes. If the leak deprived the shear rams of sufficient power, they might not succeed in cutting through the drill pipe and sealing the well.

Second, we learned that the blowout preventer had been modified in unexpected ways. One of these modifications was potentially significant. The blowout preventer has an underwater control panel. BP spent a day trying to use this control panel to activate a variable bore ram on the blowout preventer that is designed to seal tight around any pipe in the well. When they investigated why their attempts failed to activate the bore ram, they learned that the device had been modified. A useless test ram – not the variable bore ram – had been connected to the socket that was supposed to activate the variable bore ram. An entire day’s worth of precious time had been spent engaging rams that closed the wrong way.

BP told us the modifications on the BOP were extensive. After the accident, they asked Transocean for drawings of the blowout preventer. Because of the modifications, the drawings they received didn’t match the structure on the ocean floor. BP said they wasted many hours figuring this out.

Third, we learned that the blowout preventer is not powerful enough to cut through joints in the drill pipe. We found a Transocean document that I would like to put on the screen. It says: most blind shear rams are “designed to shear effectively only on the body of the drillpipe. Procedures for the use of BSR’s must therefore ensure that there is no tool joint opposite the ram prior to shearing.”

This seemed astounding to us because the threaded joints between the sections of drillpipe make up about 10% of the length of the pipe. If the shear rams cannot cut through the joints, that would mean that this so-called failsafe device would succeed in cutting the drillpipe only 90% of the time.

We asked the Cameron official about the cutting capacity of the blowout preventer on the Deepwater Horizon. He confirmed that it is not powerful enough to cut through the joints in the drillpipe. And he told us this was another possible explanation for the failure of the blowout preventer to seal the well.

And fourth, we learned that the emergency controls on the blowout preventer may have failed. The blowout preventer has two emergency controls. One is called the emergency disconnect system or EDS. BP officials told us that that the EDS was activated on the drill rig before the rig was evacuated. But the Cameron official said they doubted the signals ever reached the blowout preventer on the seabed. Cameron officials believed the explosion on the rig destroyed the communications link to the blowout preventer before the emergency sequence could be completed.

In other words, the emergency controls may have failed because the explosion that caused the emergency also disabled communications to the blowout preventer.

Still, the blowout preventer also has a “deadman switch” which is supposed to activate the blowout preventer when all else fails. But according to Cameron, there were multiple scenarios that could have caused the deadman switch not to activate. One is human oversight: the deadman switch may not have been enabled on the control panel prior to the BOP being installed on the ocean floor. One is lack of maintenance: the deadman switch won’t work if the batteries are dead. The deadman switch is connected to two separate control pods on the blowout preventer. Both rely on battery power to operate. When one of the control pods was removed and inspected after the spill began, the battery was found to be dead. The battery in the other pod has not been inspected yet.

And one appears to be a design problem. The deadman switch activates only when three separate lines that connect the rig to the blowout preventer are all severed: the communication, power, and hydraulic lines. Cameron believes the power and communication lines were severed in the explosion, but it is possible the hydraulic lines remained intact, which would have stopped the deadman switch from activating.

If this last scenario is true, the acoustic shut-off switch BP failed to install to save $500,000 would probably have worked to stop the blowout (see “Shocking allegations against BP“):

These are not the only failure scenarios that could impair the function of the blowout preventer. The Cameron official we met with described many other potential problems that could have prevented the blowout preventer from functioning properly. Steel casing or casing hanger could have been ejected from the well and blocked the operation of the rams. The drill pipe could have been severed successfully, but then dropped from the rig, breaking the seal. Or operators on the rig could have tried to activate the shear rams by pushing the shear ram control button. This would have initiated an attempt to close the rams, but it would not have been successful. The shear rams do not have enough power to cut drill pipe unless they are activated through the emergency switch or the deadman switch.

In fact, we uncovered an astonishing document that Transocean prepared in 2001, when it bought the blowout preventer from Cameron. I would like to display the executive summary from this document. It says there are 260 separate “failure modes” that “could require pulling of the BOP.” According to this report, “the predominant failures” included “ram locking mechanisms.”

How can a device that has 260 failure modes be considered failsafe?

The problems with the blowout preventer extend to the procedures for testing the device. The CEO of Transocean, Steven Newman, says in his testimony: “we have no reason to believe that they were not operational – they were jointly tested by BP and Transocean personnel as specified on April 10 and 17 and found to be functional.”

But this assertion appears to be contradicted by a document prepared by BP on April 27, one week after the explosion. According to this document, “BOP stack emergency systems are not typically tested once the BOP stack is on the seabed.” What this means that while some functions on the BOP may have been tested in the weeks before the explosion, the emergency systems, including the deadman system and the leaking emergency hydraulic system, were unlikely to have been tested.

After the Alaska pipeline and Texas refinery disasters, BP promised to make safety its number one priority. This hearing will raise serious questions about whether BP and its partners fulfilled this commitment. The safety of its entire operations rested on the performance of a leaking and apparently defective blowout preventer.

And so again we see the tragic combination of Recklessness, Arrogance, and Hubris.

America's Ten Most Corrupt Capitalists. Wall Street's captains of industry and top policymakers in Washington are often the same people. A lot of them

Alternet

The financial crisis has unveiled a new set of public villains—corrupt corporate capitalists who leveraged their connections in government for their own personal profit. During the Clinton and Bush administrations, many of these schemers were worshiped as geniuses, heroes or icons of American progress. But today we know these opportunists for what they are: Deregulatory hacks hellbent on making a profit at any cost. Without further ado, here are the 10 most corrupt capitalists in the U.S. economy.

1. Robert Rubin

Where to start with a man like Robert Rubin? A Goldman Sachs chairman who wormed his way into the Treasury Secretary post under President Bill Clinton, Rubin presided over one of the most radical deregulatory eras in the history of finance. Rubin's influence within the Democratic Party marked the final stage in the Democrats' transformation from the concerned citizens who fought Wall Street and won during the 1930s to a coalition of Republican-lite financial elites.

Rubin's most stunning deregulatory accomplishment in office was also his greatest act of corruption. Rubin helped repeal Glass-Steagall, the Depression-era law that banned economically essential banks from gambling with taxpayer money in the securities markets. In 1998, Citibank inked a merger with the Travelers Insurance group. The deal was illegal under Glass-Steagall, but with Rubin's help, the law was repealed in 1999, and the Citi-Travelers merger approved, creating too-big-to-fail behemoth Citigroup.

That same year, Rubin left the government to work for Citi, where he made $120 million as the company piled up risk after crazy risk. In 2008, the company collapsed spectacularly, necessitating a $45 billion direct government bailout, and hundreds of billions more in other government guarantees. Rubin is now attempting to rebuild his disgraced public image by warning about the dangers of government spending and Social Security. Bob, if you're worried about the deficit, the problem isn't old people trying to get by, it's corrupt bankers running amok.

2. Alan Greenspan

The officially apolitical, independent Federal Reserve chairman backed all of Rubin's favorite deregulatory plans, and helped crush an effort by Brooksley Born to regulate derivatives in 1998, after the hedge fund Long-Term Capital Management went bust. By the time Greenspan left office in 2006, the derivatives market had ballooned into a multi-trillion dollar casino, and Greenspan wanted his cut. He took a job with bond kings PIMCO and then with the hedge fund Paulson & Co.—yeah, that Paulson and Co., the one that colluded with Goldman Sachs to sabotage the company's own clients with unregulated derivatives.

Incidentally, this isn't the first time Greenspan has been a close associate of alleged fraudsters. Back in the 1980s, Greenspan went to bat for politically connected Savings & Loan titan Charles Keating, urging regulators to exempt his bank from a key rule. Keating later went to jail for fraud, after, among other things, putting out a hit on regulator William Black. ("Get Black – kill him dead.") Nice friends you've got, Alan.

3. Larry Summers

During the 1990s, Larry Summers was a top Treasury official tasked with overseeing the economic rehabilitation of Russia after the fall of the Soviet Union. This project, was, of course, a complete disaster that resulted in decades of horrific poverty. But that didn't stop top advisers to the program, notably Harvard economist Andrei Shleifer, from getting massively rich by investing his own money in Russian projects while advising both the Treasury and the Russian government. This is called "fraud," and a federal judge slapped both Shleifer and Harvard itself with hefty fines for their looting of the Russian economy. But somehow, after defrauding two governments while working for Summers, Shleifer managed to keep his job at Harvard, even after courts ruled against him.

That's because after the Clinton administration, Summers became president of Harvard, where he protected Shleifer. This wasn't the only crazy thing Summers did at Harvard—he also ran the school like a giant hedge fund, which went very well until markets crashed in 2008. By then, of course, Summers had left Harvard for a real hedge fund, D.E. Shaw, where he raked in $5.2 million working part-time. The next year, he joined the the Obama administration as the president's top economic adviser. Interestingly, the Wall Street reform bill currently circulating through Congress essentially leaves hedge funds untouched.

4. Phil and Wendy Gramm

Summers, Rubin and Greenspan weren't the only people who thought it was a good idea to let banks gamble in the derivatives casinos. In 2000, Republican Senator from Texas Phil Gramm pushed through the Commodity Futures Modernization Act, which not only banned federal regulation of these toxic poker chips, it also banned states from enforcing anti-gambling laws against derivatives trading. The bill was lobbied for heavily by energy/finance hybrid Enron, which would later implode under fraudulent derivatives trades. In 2000, when Phil Gramm pushed the bill through, his wife Wendy Gramm was serving on Enron's board of directors, where she made millions before the company went belly-up.

When Phil Gramm left the Senate, he took a job peddling political influence at Swiss banking giant UBS as vice chairman. Since Gramm's arrival, UBS has been embroiled in just about every scandal you can think of, from securities fraud to tax fraud to diamond smuggling. Interestingly, both UBS shareholders and their executives have gotten off rather lightly for these acts. The only person jailed thus far has been the tax fraud whistleblower. Looks like Phil's earning his keep.

5. Jamie Dimon

J.P. Morgan Chase CEO Jamie Dimon has done a lot of scummy things as head of one of the world's most powerful banks, but his most grotesque act of corruption actually took place at the Federal Reserve. At each of the Fed's 12 regional offices, the board of directors is staffed by officials from the region's top banks. So while it's certainly galling that the CEO of J.P. Morgan would be on the board of the New York Fed, one of J.P. Morgan's regulators, it's not all that uncommon.

But it is quite uncommon for a banker to be negotiating a bailout package for his bank with the New York Fed, while simultaneously serving on the New York Fed board. That's what happened in March 2008, when J.P. Morgan agreed to buy up Bear Stearns, on the condition that the Fed kick in $29 billion to cushion the company from any losses. Dimon-- CEO of J.P. Morgan and board member of the New York Fed-- was negotiating with Timothy Geithner, who was president of the New York Fed-- about how much money the New York Fed was going to give J.P. Morgan. On Wall Street, that's called being a savvy businessman. Everywhere else, it's called a conflict of interest.

6. Stephen Friedman

The New York Fed is just full of corruption. Consider the case of Stephen Friedman (expertly presented by Greg Kaufmann for the Nation). As the financial crisis exploded in the fall of 2008, Friedman was serving both as chairman of the New York Fed and on the board of directors at Goldman Sachs. The Fed stepped in to prevent AIG from collapsing in September 2008, and by November, the New York Fed had decided to pay all of AIG's counterparties 100 cents on the dollar for AIG's bets—even though these companies would have taken dramatic losses in bankruptcy. The public wouldn't learn which banks received this money until March 2009, but Friedman bought 52,600 shares of Goldman stock in December 2008 and January 2009, more than doubling his holdings.

As it turns out, Goldman was the top beneficiary of the AIG bailout, to the tune of $12.9 billion. Friedman made millions on the Goldman stock purchase, and is yet to disclose what he knew about where the AIG money was going, or when he knew it. Either way, it's pretty bad—if he knew Goldman benefited from the bailout, then he belongs in jail. If he didn't know, then what exactly was he doing as chairman of the New York Fed, or on Goldman's board?

7. Robert Steel

Like better-known corruptocrats Robert Rubin and Henry Paulson, Steel joined the Treasury after spending several years as a top executive with Goldman Sachs. Steel joined the Treasury in 2006 as Under Secretary for Domestic Finance, and proceeded to do, well, nothing much until financial markets went into free-fall in 2008. When Wachovia ousted CEO Ken Thompson, the company named Steel as its new CEO. Steel promptly bought one million Wachovia shares to demonstrate his commitment to the firm, but by September, Wachovia was in dire straits. The FDIC wanted to put the company through receivership—shutting it down and wiping out its shareholders.

But Steel's buddies at Treasury and the Fed intervened, and instead of closing Wachovia, they arranged a merger with Wells Fargo at $7 a share—saving Steel himself $7 million. He now serves on Wells Fargo's board of directors.

8. Henry Paulson

His time at Goldman Sachs made Henry Paulson one of the richest men in the world. Under Paulson's leadership, Goldman transformed from a private company ruled by client relationships into a public company operating as a giant global casino. As Treasury Secretary during the height of the financial crisis, Paulson personally approved a direct $10 billion capital injection into his former firm.

But even before that bailout, Paulson had been playing fast and loose with ethics rules. In June 2008, Paulson held a secret meeting in Moscow with Goldman's board of directors, where they discussed economic prognostications, market conditions and Treasury rescue plans. Not okay, Hank.

9. Warren Buffett

Warren Buffett used to be a reasonable guy, blasting the rich for waging "class warfare" against the rest of us and deriding derivatives as "financial weapons of mass destruction." These days, he's just another financier crony, lobbying Congress against Wall Street reform, and demanding a light touch on—get this—derivatives! Buffet even went so far as to buy the support of Sen. Ben Nelson, D-Nebraska, for a filibuster on reform. Buffett has also been an outspoken defender of Goldman Sachs against the recent SEC fraud allegations, allegations that stem from fancy products called "synthetic collateralized debt obligations"—the financial weapons of mass destruction Buffett once criticized.

See, it just so happens that both Buffet's reputation and his bottom line are tied to an investment he made in Goldman Sachs in 2008, when he put $10 billion of his money into the bank. Buffett has acknowledged that he only made the deal because he believed Goldman would be bailed out by the U.S. government. Which, in fact, turned out to be the case, multiple times. When the government rescued AIG, the $12.9 billion it funneled to Goldman was to cover derivatives bets Goldman had placed with the mega-insurer. Buffett was right about derivatives—they are WMD so far as the real economy is concerned. But they've enabled Warren Buffett to get even richer with taxpayer help, and now he's fighting to make sure we don't shut down his own casino.

10. Goldman Sachs

No company exemplifies the revolving door between Wall Street and Washington more than Goldman Sachs. The four people on this list are some of the worst offenders, but Goldman's D.C. army has includes many other top officials in this administration and the last.

White House:

Joshua Bolton, chief of staff for George W. Bush, was a Goldman man

Regulators:

Current New York Fed President William Dudley is a Goldman man

Current Commodity Futures Trading Commission Chairman Gary Gensler has been a responsible regulator under Obama, but he was a deregulatory hawk during the Clinton years, and worked at Goldman for nearly two decades before that.

A top aide to Timothy Geithner, Gene Sperling, is a Goldman man

Current Treasury Undersecretary Robert Hormats is a Goldman man

Current Treasury Chief of Staff Mark Patterson is a former Goldman lobbyist

Former SEC Chairman Arthur Levitt is now a Goldman adviser

Neel Kashkari, Henry Paulson's deputy on TARP, was a Goldman man

COO of the SEC Enforcement Division Adam Storch is a Goldman man

Congress:

Former Sen. John Corzine, D-N.J., was Goldman's CEO before Henry Paulson

Rep. Jim Himes, D-Conn., was a Goldman Vice President before he ran for Congress

Former House Minority Leader Dick Gephardt, D-Mo., now lobbies for Goldman

And the list goes on.

Tuesday, May 11, 2010

Was Last Week's Market Crash a Direct Attack By Financial Terrorists?



In a market where 70 percent of all trades are executed by computer algorithms via High Frequency Trading, Goldman Sachs has the power to make the market crash or rise at will.

Last week, the U.S. stock market suffered the greatest sudden drop in its history, for reasons that nobody on Wall Street can seem to decipher. But of all the explanations being examined—a tech glitch, Greek debt worries and fraud have all been discussed--the most troubling is not being given sufficient attention.

Coming on the very day that Congress considered two key financial reforms, the timing of the "flash crash" raises concerns that Wall Street is resorting to extreme tactics in its efforts to intimidate politicians who want to rein in the capital markets casino. Thursday's market plunge could have been an act of financial terrorism. Wall Street has both the motive and the means: Goldman Sachs, which is currently under investigation for a very different kind of fraud, has the trading power to make just such a market crash occur, and has much to lose from financial reforms moving through Congress.

On Thursday afternoon, the Dow Jones Industrial Average plummeted 700 points in about 10 minutes. A few hours later, top Democratic negotiators reached a compromise with Sen. Bernie Sanders, I-Vermont, over a plan to audit the Federal Reserve's secret bailout operations. The Fed has pumped nearly $4.3 trillion in bailout funds into the banking system since the onset of the crisis, and we know almost nothing about that money. The "Audit The Fed" amendment would finally tell the public the full extent of Wall Street's bailout operations.

Later Thursday night, Congress voted on—and rejected—an amendment that would have forced the break-up of the six largest U.S. financial behemoths into banks that can fail without wrecking the economy. Goldman Sachs would have been one of those six banks. Meanwhile, riots in Greece and inaction from the European Central Bank raised the possibility of major trouble for our financial titans across the pond.

This amalgamation of events is eerily similar to what took place on Sept. 29, 2008, after the U.S. House of Representatives shot down the Troubled Asset Relief Program. Immediately after the vote, big banks made the market plunge a record 778 points, sparking widespread fear and panic that helped convince Congress to eventually pass the bailout.

Can these conveniently timed market freak-outs be chalked up as a simple, if stunning, response to significant political events? Or is there something more sinister going on?

Right now, there is enough financial firepower concentrated in the hands of a few individuals to move the stock market whichever way these people want it to go. These 10-minute 700 point drops could very well be a precision-guided High Frequency Trading (HFT) attack designed to show Congress who's boss.

In today's stock market, 70 percent of all trades are executed by computer algorithms via High Frequency Trading. And Goldman Sachs completely dominates the HFT business, with a virtual monopoly over trading at the New York Stock Exchange, as Tyler Durden describes for Zero Hedge:

Goldman's dominance of the NYSE's Program Trading platform, where in addition to recent entrant GETCO, it has been to date an explicit monopolist of the so-called Supplementary Liquidity Provider program, a role which affords the company greater liquidity rebates for, well providing liquidity, and generating who knows what other possible front market-looking, flow-prop integration benefits. Yesterday [5/6/10], Goldman's SLP function was non-existent. One wonders -- was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among the main reasons for the market collapse.

Importantly, Durden notes that in April, Goldman executed a huge proportion of trades for its own account—enough to significantly move the market, if it wanted to.

What is notable here is that of the 1.4 billion in principal shares, or shares traded for the firm's own account, Goldman was the top trader by a margin of over 100% compared to the second biggest program trader.

We have long claimed that Goldman is the de facto monopolist of the NYSE's program trading platform. As such, it is certainly the case that Goldman was instrumental in either a) precipitating yesterday's crash or b) not providing the critical liquidity which it is required to do, when the time came. There are no other options.

For further investigation, I turned to Max Keiser, who has written and authored similar Program Trading and HFT computer algorithms. I asked him if he thought this was an attack, and here is his response:

May 6th was an unequivocal act of domestic financial terrorism in America. A day that will live in infamy. To scare the lawmakers, themselves large owners of the very banks and stocks that they are supposed to be regulating, a financial weapon of mass destruction was put to their head and they acquiesced.

As the inventor of the continuous double-action, market-making technology (VST tech. US pat. no. 5950176) that is referenced 132 times by program trading and HFT patents since 1996, I can tell you that Goldman, JP Morgan and the gang simply pulled the "buys" from their computer trading programs and manufactured a crash. And when the coast was clear, and it was clear the politicians were not going to vote for anything that would break up the "too big to fail" banks; all the "sells" were pulled from the computers and the market roared back.

This is a Manchurian Candidate market where program trading bots start the ball rolling in whatever direction Wall St. wants the market to go -- and then hundreds of thousands of day traders watching Cramer on CNBC jump on the momentum bandwagon and commit the crime for the Wall St. financial terrorists, who then say, "It wasn't us, it was 'the market!'"

On Friday, the day after the "flash crash" and the defeat of the "break up the banks" amendment, Goldman just happened to be meeting with the SEC to work out a settlement in the Abacus fraud case.

These two major market crashes are not the only grounds for suspicion. On January 21 and 22 of 2010, President Barack Obama had a press conference and came out in favor of the Volcker Rule, which would have limited these HFT and "proprietary trading" schemes. At that time, the market dropped 430 points. Soon afterward, the Volcker Rule faded away and Obama has not seriously addressed this reform since then.

We know banks are willing to put the entire global economy at risk in order to pursue their own reckless profits. We also know that bankers at the largest U.S. financial firms are fighting like hell to keep their too-big-to-fail gun pointed at the head of the U.S. economy, and to keep their riskiest and most abusive activities beyond the scope of regulators. Consider what they've already accomplished over the past two years:

* 50 million Americans are now living in poverty, which is the highest poverty rate in the industrialized world;
* 30 million Americans are in need of work;
* Five million American families foreclosed on, with 15 million expected by 2014;
* 50 percent of U.S. children will now use a food stamp during childhood;
* Soaring budget deficits in states across the country and a record high national debt
* Record-breaking profits and bonuses for themselves.

Motive and means are not enough to prove a case. You have to show that someone actually executed the dirty deed. But right now there is an alarmingly narrow scope of the calls for investigation into the flash crash. The SEC is considering "market manipulation" investigations, while members of Congress want to investigate whether technological malfunctions are to blame. But shouldn't somebody at least be looking into whether the flash crash was not merely fraud perpetrated for profit, but outright political intimidation—an act of economic terrorism? We'll never know if we don't investigate.

The Cover-up: BP's Crude Politics and the Looming Environmental Mega-Disaster



This image provided by the U.S. Coast Guard Saturday April 24, 2010, shows oil leaking from the drill pipe of the Deepwater Horizon drilling rig after it sank. A confidential government report on the unfolding spill disaster makes clear the Coast Guard now fears the well could be on the verge of becoming an unchecked gusher shooting millions of gallons of oil per day into the Gulf.

WMR has been informed by sources in the US Army Corps of Engineers, Federal Emergency Management Agency (FEMA), and Florida Department of Environmental Protection that the Obama White House and British Petroleum (BP), which pumped $71,000 into Barack Obama's 2008 presidential campaign -- more than John McCain or Hillary Clinton, are covering up the magnitude of the volcanic-level oil disaster in the Gulf of Mexico and working together to limit BP's liability for damage caused by what can be called a "mega-disaster."

Obama and his senior White House staff, as well as Interior Secretary Ken Salazar, are working with BP's chief executive officer Tony Hayward on legislation that would raise the cap on liability for damage claims from those affected by the oil disaster from $75 million to $10 billion. However, WMR's federal and Gulf state sources are reporting the disaster has the real potential cost of at least $1 trillion. Critics of the deal being worked out between Obama and Hayward point out that $10 billion is a mere drop in the bucket for a trillion dollar disaster but also note that BP, if its assets were nationalized, could fetch almost a trillion dollars for compensation purposes. There is talk in some government circles, including FEMA, of the need to nationalize BP in order to compensate those who will ultimately be affected by the worst oil disaster in the history of the world.

Plans by BP to sink a 4-story containment dome over the oil gushing from a gaping chasm one kilometer below the surface of the Gulf, where the oil rig Deepwater Horizon exploded and killed 11 workers on April 20, and reports that one of the leaks has been contained is pure public relations disinformation designed to avoid panic and demands for greater action by the Obama administration, according to FEMA and Corps of Engineers sources. Sources within these agencies say the White House has been resisting releasing any "damaging information" about the oil disaster. They add that if the ocean oil geyser is not stopped within 90 days, there will be irreversible damage to the marine eco-systems of the Gulf of Mexico, north Atlantic Ocean, and beyond. At best, some Corps of Engineers experts say it could take two years to cement the chasm on the floor of the Gulf.

Only after the magnitude of the disaster became evident did Obama order Homeland Security Secretary Janet Napolitano to declare the oil disaster a "national security issue." Although the Coast Guard and FEMA are part of her department, Napolitano's actual reasoning for invoking national security was to block media coverage of the immensity of the disaster that is unfolding for the Gulf of Mexico and Atlantic Ocean and their coastlines.

From the Corps of Engineers, FEMA, the Environmental Protection Agency, Coast Guard, and Gulf state environmental protection agencies, the message is the same: "we've never dealt with anything like this before."

The Obama administration also conspired with BP to fudge the extent of the oil leak, according to our federal and state sources. After the oil rig exploded and sank, the government stated that 42,000 gallons per day was gushing from the seabed chasm. Five days later, the federal government upped the leakage to 210,000 gallons a day.

However, WMR has been informed that submersibles that are monitoring the escaping oil from the Gulf seabed are viewing television pictures of what is a "volcanic-like" eruption of oil. Moreover, when the Army Corps of Engineers first attempted to obtain NASA imagery of the Gulf oil slick -- which is larger than that being reported by the media -- it was turned down. However, National Geographic managed to obtain the satellite imagery shots of the extent of the disaster and posted them on their web site.

There is other satellite imagery being withheld by the Obama administration that shows what lies under the gaping chasm spewing oil at an ever-alarming rate is a cavern estimated to be around the size of Mount Everest. This information has been given an almost national security-level classification to keep it from the public, according to our sources.

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The Corps and Engineers and FEMA are quietly critical of the lack of support for quick action after the oil disaster by the Obama White House and the US Coast Guard. Only recently, has the Coast Guard understood the magnitude of the disaster, dispatching nearly 70 vessels to the affected area. WMR has also learned that inspections of off-shore rigs' shut-off valves by the Minerals Management Service during the Bush administration were merely rubber-stamp operations, resulting from criminal collusion between Halliburton and the Interior Department's service, and that the potential for similar disasters exists with the other 30,000 off-shore rigs that use the same shut-off valves.

The impact of the disaster became known to the Corps of Engineers and FEMA even before the White House began to take the magnitude of the impending catastrophe seriously. The first casualty of the disaster is the seafood industy, with not just fishermen, oystermen, crabbers, and shrimpers losing their jobs, but all those involved in the restaurant industry, from truckers to waitresses, facing lay-offs.

The invasion of crude oil into estuaries like the oyster-rich Apalachicola Bay in Florida spell disaster for the seafood industry. However, the biggest threat is to Florida's Everglades, which federal and state experts fear will be turned into a "dead zone" if the oil continues to gush forth from the Gulf chasm. There are also expectations that the oil slick will be caught up in the Gulf stream off the eastern seaboard of the United States, fouling beaches and estuaries like the Chesapeake Bay, and ultimately target the rich fishing grounds of the Grand Banks off Newfoundland.

WMR has also learned that 36 urban areas on the Gulf of Mexico are expecting to be confronted with a major disaster from the oil volcano in the next few days. Although protective water surface boons are being laid to protect such sensitive areas as Alabama's Dauphin Island, the mouth of the Mississippi River, and Florida's Apalachicola Bay, Florida, there is only 16 miles of boons available for the protection of 2,276 miles of tidal shoreline in the state of Florida.

Emergency preparations in dealing with the expanding oil menace are now being made for cities and towns from Corpus Christi, Texas, to Houston, New Orleans, Gulfport, Mobile, Pensacola, Tampa-St.Petersburg-Clearwater, Sarasota-Bradenton, Naples, and Key West. Some 36 FEMA-funded contracts between cities, towns, and counties and emergency workers are due to be invoked within days, if not hours, according to WMR's FEMA sources.

There are plans to evacuate people with respiratory problems, especially those among the retired senior population along the west coast of Florida, before officials begin burning surface oil as it begins to near the coastline.

There is another major threat looming for inland towns and cities. With hurricane season in effect, there is a potential for ocean oil to be picked up by hurricane-driven rains and dropped into fresh water lakes and rivers, far from the ocean, thus adding to the pollution of water supplies and eco-systems.

Leaked report: Government fears Deepwater Horizon well could become unchecked gusher



Homeland Security Secretary Janet Napolitano uses a map of the Gulf of Mexico during the daily press briefing at the White House in Washington, Thursday, April 29, 2010. A leaked memorandum obtained by the Press-Register on the unfolding spill disaster in the Gulf makes clear the Coast Guard now fears the Deepwater Horizon well site could be on the verge of becoming an unchecked gusher shooting millions of gallons of oil per day into the Gulf.

'The following is not public' document states

A confidential government report on the unfolding spill disaster in the Gulf makes clear the Coast Guard now fears the well could become an unchecked gusher shooting millions of gallons of oil per day into the Gulf.

"The following is not public," reads the National Oceanic and Atmospheric Administration's Emergency Response document dated April 28. "Two additional release points were found today in the tangled riser. If the riser pipe deteriorates further, the flow could become unchecked resulting in a release volume an order of magnitude higher than previously thought."

Asked Friday to comment on the document, NOAA spokesman Scott Smullen said that the additional leaks described were reported to the public late Wednesday night. Regarding the possibility of the spill becoming an order of magnitude larger, Smullen said, "I'm letting the document you have speak for itself."

In scientific circles, an order of magnitude means something is 10 times larger. In this case, an order of magnitude higher would mean the volume of oil coming from the well could be 10 times higher than the 5,000 barrels a day coming out now. That would mean 50,000 barrels a day, or 2.1 million gallons a day. It appears the new leaks mentioned in the Wednesday release are the leaks reported to the public late Wednesday night.

"There is no official change in the volume released but the USCG is no longer stating that the release rate is 1,000 barrels a day," continues the document, referred to as report No. 12. "Instead they are saying that they are preparing for a worst-case release and bringing all assets to bear."

The emergency document also states that the spill has grown in size so quickly that only 1 to 2 percent of it has been sprayed with dispersants.

The Press-Register obtained the emergency report from a government official. The White House, NOAA, the Coast Guard and BP Plc did not immediately return calls for comment made early this morning.

The worst-case scenario for the broken and leaking well pouring oil into the Gulf of Mexico would be the loss of the wellhead and kinked piping currently restricting the flow to 5,000 barrels -- or 210,000 gallons -- per day.

If the wellhead is lost, oil could leave the well at a much greater rate.

"Typically, a very good well in the Gulf can produce 30,000 barrels a day, but that's under control. I have no idea what an uncontrolled release could be," said Stephen Sears, chairman of the petroleum engineering department at Louisiana State University.

On Thursday, federal officials said they were preparing for the worst-case scenario but didn't elaborate.

Kinks in the piping created as the rig sank to the seafloor may be all that is preventing the Deepwater Horizon well from releasing its maximum flow. BP is now drilling a relief well as the ultimate fix. The company said Thursday that process would take up to 3 months.

"I'm not sure what's happening down there right now. I have heard there is a kink in what's called the riser. The riser is a long pipe that connects the wellhead to the rig. I really don't know if that kink is a big restriction. Is that really a big restriction? There could be another restriction further down," said LSU's Sears.

"An analogy would be if you have a kink in a garden hose. You suspect that kink is restricting the flow, but there could be another restriction or kink somewhere else closer to the faucet.

BP Plc executive Doug Suttles said Thursday the company was worried about "erosion" of the pipe at the wellhead.

Sand is an integral part of the formations that hold oil under the Gulf. That sand, carried in the oil as it shoots through the piping, is blamed for the ongoing erosion described by BP.

"The pipe could disintegrate. You've got sand getting into the pipe, it's eroding the pipe all the time, like a sandblaster," said Ron Gouguet, a former oil spill response coordinator for the National Oceanic and Atmospheric Administration.

"When the oil is removed normally, it comes out at a controlled rate. You can still have abrasive particles in that. Well, now, at this well, its coming out at fairly high velocity," Gouguet continued. "Any erosive grains are abrading the inside of the pipe and all the steel that comes in contact with the liquid. It's essentially sanding away the pipe."

Gouguet said the loss of a wellhead is totally unprecedented.

"How bad it could get from that, you will have a tremendous volume of oil that is going to be offgassing on the coast. Depending on how much wind is there, and how those gases build up, that's a significant health concern," he said.

The formation that was being drilled by Deepwater Horizon when it exploded and sank last week is reported to have tens of millions of barrels of oil. A barrel contains 42 gallons.

Smullen described the NOAA document as a regular daily briefing. "Your report makes it sound pretty dire. It's a scenario," he said, "It's a regular daily briefing sheet that considered different scenarios much like any first responder would."