“The only thing we have to fear is fear itself.” – Franklin Roosevelt
“This sucker could go down!” – George U.U. Bush
“The sky is falling!” – Chicken Little
Congress is working SO hard to forestall the financial crisis, in the finest traditions of saving the nation. Let me tell you what tradition that is.
Democracy as practiced in the U.S. is based on three fundamental principles:
1) No problem will be addressed until it is a crisis almost beyond salvation.
2) After enough lower-and-middle-class lemmings have gone over the cliff, Congress will take some action designed to look like they are saving the nation.
3) The voters will notice the crisis until they change channels during the next commercial.
Only in one crisis have I been forced to accept the United States Congress as my personal savior. In 1973 the Arabs lost a war with Israel and got mad. They declared an embargo, meaning that if anybody sailed a boatload of crude oil from one of their ports to a U.S. port, they would get REAL mad. The Tooth Fairy was a bigger threat to the U.S. economy. The international oil companies could easily send crude boats to non-U.S. ports and sell the cargoes to third parties, fourth, and so on. Eventually a purchaser would decide to send the boat with its crude oil to a U.S. port. The crude would never leave the boat but the Arab embargo would be respected. Net reduction in crude supply to the U.S.: Zero.
Unfortunately, Congress saw a chance to save the nation. They decided the sky would fall and leave us with about 70% as much crude as we used in 1972. They passed a law that said in 1974 no oil company could sell anybody more than 70% of what they had sold them in 1972. They called it allocation. Sure to ensure fair distribution for sure, right? Sure.
Congress didn’t realize that gasoline was (still is) carried to consumers by thousands of small distributors across the country. These outfits constantly go out of business, expand by purchasing somebody else’s distributorship, or sell out to somebody else. So consider what happened with the Big International Thievin’ Evil Bastards Oil Company (known as BITEBOIL.) When the embargo came, BITEBOIL swapped crude cargos around so they could produce just as much gasoline in the U.S. as they did before.
In the year before the embargo BITEBOIL sold 1 million gallons of gasoline to Petroleum Oil Transport (POT) a distribution firm owned by John and Mary Middleclass of Dry Prong, Louisiana. Under the allocation law, BITEBOIL could sell POT 70% of a million, or 700,000 gallons, in 1974. Only POT wasn’t there. John and Mary had sold out to their son, who owned Small Oil Limited (SOL.) BITEBOIL could not sell those 700,000 gallons to anybody else without violating the 70% allocation for Anybody Else.
Since SOL was a start-up and didn’t buy any gasoline the year before, NOBODY could sell them any gasoline in 1974. By Easter SOL was broke. The owner had to move back in with John and Mary, who were in line at the gas pumps cursing BITEBOIL for cutting off the gasoline. And BITEBOIL had 700,000 gallons of gasoline in its tanks that Congress had legally prohibited them from selling to anybody.
Soon BITEBOIL had filled up their product tanks with gasoline that they weren’t allowed to sell and they had to start cutting back on their crude runs. Thus did Congress, by allocation, made the embargo come true. It was like having the Tooth Fairy bite your nose off. Escalate this from POT’s 1 million gallons to 600 million gallons every day across the country, and you’ll begin understand the true depths of Congressional wisdom. The whole country was SOL.
But the nation wasn't saved enough yet. The major companies like BITEBOIL were still importing crude and Congress had to make sure the little refiners, who didn’t have international sources, got some. So Congress made a list of Big Oil companies who were required to sell a portion of all the crude they imported to a refinery that was not on the list, at a set price. A very LOW set price. They called it the Entitlement Program.
Congress didn't say you had to already have a refinery in order to qualify for entitlements. The law allowed you to build a new refinery, then call up BITEBOIL and tell them to deliver your entitlement of very very cheap crude oil. The Good Hope refinery between Baton Rouge and New Orleans was built at a cost of $240 million dollars. Industry scuttlebutt had it that the entire amount was recovered in two years. Would you like to invest your 401(K) in something that would pay you back your total investment every two years? Anybody with a hundred million or so could get in the game, and the number of refineries in the U.S. rose from about 150 in 1973 to about 300 in 1980.
Some of those refineries were awful. They consumed gross amounts of energy. They were, to be polite, environmentally unfriendly. They treated their employees like --- well like employees get treated today. Being new sellers, they weren’t subject to allocations so they ran maxed out on feed rate with their inefficient, polluting little refineries. The big, efficient refineries with the environmental protections built in were cut back to minimal runs and were even shutting down. The best deals for the nation at large were the guys like Fuels Universal (known as FU) who built their refineries but never started them up. They called BITEBOIL to claim their entitlement, but offered to sell it back to them without taking delivery. The oil never left BITEBOIL’s tanks, but they had to pay FU a HFW (Huge Financial Wad.) FU could have built their refinery out of popsicle sticks and pipe cleaners.
In Summary: By their own action Congress made the embargo effective when it otherwise would not have been, and created an incentive for investors to make the nation less energy efficient and more polluted. When you hear that Congress is working late into the night to save us from the financial crisis, remember that is the tradition they are trying to uphold.
Am I for real, you ask? Yes. I made up individuals and companies above, but the impact of Congressional action was exactly what I have described. I personally saw it in action, and did many of the calculations required to comply with these laws. After 35 years I can laugh about it, but I know that tonight the dreams will come.
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