BP, banks, and shareholder neglect
The panoply of diverse financial reforms that are being discussed and implemented by governments all over the world are aimed at embedding the principle that the polluter should pay into banking.
Whether it's the requirement that owners of banks should put more of their equity capital at risk, or the imposition of new taxes on what banks borrow, or even the planned resolution procedures which aim to protect "innocent" depositors while heaping losses on more sophisticated creditors and investors, they're all attempts to prevent a repeat of what happened in 2007-8, when the losses of banks were nationalised and born by taxpayers to a wholly unprecedented extent.
The underlying problem is that the global economy is so dependent on credit and payments services provided by banks that we dare not allow big banks to collapse. So somehow we have to find a way to punish and wipe out the owners and institutional creditors of banks without wiping out those banking operations that are vital to our prosperity.
Tricky - but important.
As it happens, oil is probably as vital to the functioning of the global economy as credit creation and money transmission. And right now, in the oil industry, we have an apparently conspicuous example of a polluter paying, BP.
So are BP's woes an example of what we would wish to see in the banking and finance industry?
There are certainly very interesting similarities between the debacle at BP and what happened at the likes of Royal Bank of Scotland, Northern Rock, Citigroup, HBOS, AIG and so on.
The first is that neither BP or any of the big banks took out external insurance - or at least sufficient external insurance - for what have come to be known as low risk, high impact events.
The banks became lethally dependent on raising finance by parcelling up loans and selling them to international investors on asset-backed securities markets. And they had no plan B when those markets shut down in the summer of 2007 and the finance dried up. They had taken out no insurance to cover the funding gap.
At that point, they could not borrow what they needed, and so become unable to lend what businesses and households required. That was the beginning of what we called the "credit crunch", which led directly and inexorably to both global recession and the near meltdown of the entire financial system in the autumn of 2008.
In a very similar way, BP had a formal policy of not buying external insurance against possible disasters. Here is the relevant excerpt from its 2009 report and accounts:
"The group generally restricts its purchase of insurance to situations where this is required for legal or contractual reasons. This is because external insurance is not considered an economic means of financing losses for the group".
Hmmm. I suspect the board of BP would concede they got that one wrong - as the company faces uninsured losses that are expected to exceed many tens of billions of dollars, the monetary measure of all that oil spewing from the Macondo well and poisoning the Gulf of Mexico.
President Obama has been adamant that BP will pick up all the direct costs of the disaster and many of the indirect costs. Which BP can obviously do unless and until it is bankrupted.
Or to put it another way, the principle that the polluter pays only works if the polluter is kept alive long enough to finance and execute the clean-up. The US government therefore needs to be mindful to calibrate its onslaught on BP in a way that doesn't scare off providers of vital credit to the oil company and tip it into bankruptcy.
Damage has already been done, however, to the aspiration that commercial companies should bear all the costs of oil extraction. The adversarial nature of the relationship between the White House and BP probably means that even if a company like BP wanted to take out catastrophe insurance for platforms operating in deep waters, the market would probably be closed.
So like it or not, if it's felt that the world needs the oil from more treacherous locations, the public sector and taxpayers may find they are underwriting some of the risks - unless, that is, the big oil companies themselves can be persuaded to mutually insure each other.
I suppose the big point is that even in the oil industry, it's very difficult to make the polluter pay everything. Whether its finance or energy, taxpayers and states cannot escape exposure to some pretty big liabilities.
Which points perhaps to one of the most puzzling failures of all - which is why the owners of the banks and BP have been so hopeless at looking after their own interests.
Even if shareholders of banks haven't paid their fair share of the cost of cleaning up the worst banking crisis since the 1930s, they've paid quite a lot, in collapsing share prices and cancelled dividends.
They barely raised a titter of protest when the banks were taking reckless risks with their money between 2001 and 2007. And even today, as the Bank of England points out, they're permitting banks to deprive them of vital dividends while handing out colossal remuneration to bankers: shareholders seem to be singularly unable to defend their own interests (with the exception, I should point out, of hedge funds - which will doubtless upset many of you, and is a story for another day).
Equally, did any shareholder in BP notice that it was self-insuring and question whether that was appropriate? In the unlikely event that they did, why did they keep their fears private given the refusal of the company to lay off the risks of its activities?
As luck would have it, the Financial Reporting Council has today published a new "stewardship" code for institutional shareholders, filled with worthy principles for investors to follow in the hope this turns them from absentee landlords into engaged, constructive owners.
It's a start, most would say. But the culture of neglect that arguably infects the big institutions that own our biggest businesses (on behalf of us, because it's our savings that they're investing) won't quickly or easily be cured.