BP's $20 billion fund

President Obama's promise Tuesday to make BP pay claims for damages caused by the Gulf oil-spill disaster was bolstered mightily Wednesday when the administration reportedly forced agreement by BP executives to place $20 billion in an escrow account for such payments. The account, to be funded by two BP payments this year and subsequent payments quarterly over the next several years, would be administered by Kenneth Feinberg, who oversaw payments to victims of the 9-11 terrorist attacks on New York's twin towers.

The escrow fund would be used to relieve the financial burdens imposed by the spill on Gulf Coast workers and companies in the fishing and tourism industries, and likely in related areas in the business food-chain as well. Such payments are desperately needed by the people and businesses already put out of work by the spill, and by those who will follow them as the economic ripple effects inevitably widen.

Though specific numbers are yet to be tallied, the costs of the spill are already broad, and increasingly nightmarish for many families and businesses. In fact, the seemingly unending spill -- now estimated to be up possibly to 60,000 barrels a day -- seems likely to cause a blanket wave of renewed recession in communities across the Gulf.

Certainly the fishing industry, tourism and related businesses -- and the myriad businesses and service industries sustained, in turn, by the everyday spending of workers in these core Gulf industries -- are being hammered. And they will continue to be hammered, by the loss of jobs and local tax revenue long after the blown-out well is contained.

It will take many months once the gushing well is capped to skim the oil off the ocean's surface and clean the shores. But the worst damage -- the underwater damage to the fisheries, reefs and ecosystems -- will haunt the Gulf economically for decades, as research into the long-term effects oil spills in aquatic ecosystems has shown.

Given the daunting challenges to restoration of the aquatic and coastal environments, it was appropriate that President Obama on Tuesday described the spill and the work ahead in almost war-like terms. He said the spill was an "assault" on coastal communities and residents' way of life, and he promised that he would "fight this spill with everything we've got for as long as it takes."

He appointed Ray Mabus, the Secretary of the Navy and a former Mississippi governor, to develop a comprehensive Gulf Coast restoration plan in cooperation with local governments, states and virtually every affected constituency in the Gulf.

Still, there remain substantial questions. One is whether the administration will also hold BP liable for the cost of restoration work in the Gulf ecosystem in the long-term. Another is whether the company's $20 billion commitment will be adequate for economic damages.

That sounds like a big number, but the scope of the damage caused by BP's recklessness, and possible malfeasance, may easily exceed that amount. The bulk of the nation's 10 largest banks, for example, received more than $20 billion each in the Troubled Relief Assets Program (TARP) bailouts. Those banks subsequently repaid the loans, mainly to escape TARP rules that curtailed their lucrative market trading activities.

It is easy to imagine that the direct economic damages related to the spill, resulting economic losses and restoration costs could easily surpass $20 billion in damages. The administration must make it clear to BP that it will be on the hook for all those costs.

Such a demand nevertheless puts even BP under fiscal duress. Though the company earned $17 billion in profit last year and is the world's third largest oil company, its stock has plummeted as the Obama administration has made it clear that BP would be required to establish an escrow fund for damages.

Regardless, the company's officials reversed course Wednesday on its refusal to compensate Gulf oil-industry workers laid off in the wake of the spill, agreeing also establish a $100,000 million fund for them. It also decided to forego its quarterly dividend to stock holders, and it issued an apology for causing the spill.

These developments are promising and just. So is Mr. Obama's call for action, in the wake of the spill, to focus more broadly on the fundamental need for the nation to embrace energy efficiency and renewable power in order to sharply reduce use of oil.

The president is on the right track. But until BP, or the government, can find a way actually to shut down the gushing leak that is ruining the Gulf Coast, and that threatens to spread on looping currents up the east coast of Florida, Americans will continue to have a hard time looking beyond the spill itself. Stopping the leak remains the first priority; it's a battle that BP and the administration will lose every day until the spill actually is stopped.

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