Catastrophe (34 page)

Gaffney is right when he argues that the federal government cannot permit financial institutions under its control to have Shariah-compliant funds or to put Shariah law experts on its advisory boards. The fees paid to these “experts” for explicitly religious advice clearly violate the separation of church and state.

A lawsuit is being brought to force AIG—the insurance giant that the federal government bailed out in 2008 and again this year—to drop its Shariah-compliant financing program. The suit alleges that, since AIG is now controlled by the government, its Shariah programs constitute a state action that is barred by the First Amendment. With Uncle Sam owning more than 80 percent of AIG, they’ve got a good case.

Yerushalmi points out that AIG had to give the government “preferred stock (preferred means it has special benefits over regular shareholders) which would allow the Treasury to receive 79.9 percent of any dividends paid and to vote with the common stockholders in an amount equal to that 79.9 percent.”
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Not unreasonably, he points out that “by anyone’s definition, if you control 79.9 percent of the voting rights of a company, you not only own the company, you control it. That is de facto and de jure control. The company can do nothing you don’t want it to. Period.”
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Yerushalmi concludes that “whatever AIG is doing, it is effectively acting on behalf of the U.S. government. If a private entity is really controlled by or acting in the place of government, that entity must abide by the protections
in the U.S. Constitution against government violations of our civil liberties.”
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Including the First Amendment.

Yet AIG, Yerushalmi argues, “intentionally promotes Sharia-compliant businesses and insurance products, which by necessity must comply with the 1200-year-old body of Islamic law based on the Qur’an and other Islamic canon, which demands the conversion, subjugation, or destruction of the infidel West, including the United States.
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“To help achieve these objectives,” he continues, “and with the aid of federal tax dollars, AIG employs a three-person Shariah Advisory Board, with members from Saudi Arabia, Bahrain, and Pakistan.”
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AIG says that the role of its Shariah authority “is to review operations, supervise its development of Islamic products, and determine Shariah compliance of these products and investments.”
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That combination violates the First Amendment.

An even more outrageous violation of the establishment clause of the First Amendment is unfolding in Minnesota, where the state is sponsoring a Shariah-compliant program to help Muslims buy homes without violating their religious prohibition against paying interest.

Under the program, the state buys a home and resells it to a Muslim home buyer. The down payment and monthly installments on the mortgage are agreed to up front at current mortgage rates. This arrangement permits the Muslim family to avoid paying interest. The state pays the interest; the family simply reimburses it, thus avoiding the religious proscription.
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Imagine a program for observant Orthodox Jews where the state would send in workers to turn on lights for them during the Sabbath! Or to drive them around for free so they don’t have to operate a motor vehicle on Saturday. That’s exactly what this Minnesota program amounts to.

What business does a state have to jump through such hoops to help members of a specific religion to purchase homes? If anything violates the wall of separation between church and state, this is it! We are grateful to www.jihadwatch.org for bringing this crazy law to public attention.

If courts are going to bar schools or government buildings from posting the Ten Commandments on their walls, they must also bar Shariah compliance by banks or financial institutions that are dominated by the federal government.

We all need to support the Center for Security Policy in its work to block Shariah from fighting our values through our top banks and insurance companies. If it can prevail in the AIG suit, it will win a test case that will fully reverse the Islamic offensive. The center is financed by public contributions in its work to protect our Constitution, secular government, and Western values. You can find it at http://www.centerforsecuritypolicy.org/index.xml.

Oh, and by the way, the governor of Minnesota is Tim Pawlenty. He is a Republican who was on the short list for vice president in 2008. These days, he’s often mentioned as a candidate for the 2012 Republican presidential nomination. Why don’t you drop him an e-mail and let him know what you think of Minnesota’s Shariah-compliant mortgage program? His e-mail address is [email protected].

He’ll love hearing from you.

Which administration do you think gave away more money to Big Oil? Bush 43 or Clinton?

Bet you guessed wrong.

Because no matter how much George W. Bush and Dick Cheney worked overtime to figure out ways to funnel money to their oil company buddies, the Clinton administration—through sheer and incomprehensible incompetence—gave them more!

Sometimes it’s tempting to read conspiracy theories into the actions of our government, particularly when the opposite party is in power. But there is no conspiracy theory here. Just a story of an outrageous screw-up—one that is robbing us all of cash we could all use in this struggling economy.

In fact, American taxpayers will be subsidizing the major oil and gas companies for years to come, all because of the mistakes of Bill Clinton’s Department of the Interior. It’s estimated that its blunder will end up funneling up to $60 billion to Big Oil!
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Letting Big Oil grab $60 billion from the taxpayers—while we’re facing the largest deficit in history—qualifies as a catastrophe in anybody’s book.

The problem began when President Clinton and his interior secretary, Bruce Babbitt, decided to stimulate oil and gas exploration in the Gulf of Mexico by agreeing to reduce, or even outright eliminate, the royalty payments energy companies would normally owe the federal government for the right to drill there. The concept was to exempt them from royalties—which usually run between 12 and 16 percent of the cost of revenues—until they reached a certain volume of production, or until oil or gas prices rose above specific price levels.
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The basic idea was a good one. With America’s energy needs skyrocketing and domestic production of oil dropping, it was only wise that our eyes turn south—to the Gulf of Mexico. Estimates of how much oil is buried under its floor run as high as 4 billion barrels—oil that modern technology has finally made it possible to recover.

So Clinton and Babbitt urged Congress to pass the Outer Continental Shelf Deepwater Royalty Relief Act of 1995, which reduced the royalties the energy companies would have to pay to drill in the gulf. Congress provided that the royalty relief would remain in effect as long as oil and gas production from gulf leases remained below a certain volume. The legislators reasoned that, since the suspension of royalties was an incentive program to encourage exploration and drilling in the gulf, it would no longer be necessary after a significant volume of energy began flowing from these leaseholds.

Astonishingly, however, Congress overlooked one key factor: it failed to include any provision tying the suspension of royalty payments to the price of energy. No problem, the Clinton people said. We’ll just include the price threshold in the drilling contracts that the Interior Department issues to each energy company. New legislation to discontinue the royalty relief once prices rose, they said, was unnecessary. Famous last words.

At the time, the price issue didn’t seem too urgent. After a series of significant oil and gas discoveries in the North Sea and elsewhere, energy prices were low. India and China had yet to go through their rapid development; their surge of energy appetite was in the future.

So, in 1996 and 1997, Clinton’s Department of the Interior signed leases for gulf exploration and drilling with major energy companies, specifying that they would be exempt from royalty requirements unless the price
of oil rose above $34 per barrel of oil and an equivalent price for natural gas.
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After all, the Clinton administration reasoned, if prices were high, the energy companies wouldn’t need relief from royalty payments. They’d be making plenty on the oil and gas they mined in the gulf.

Why didn’t Clinton and Babbitt ask Congress to amend the Royalty Relief Act to require full royalty payments if the price rose above a certain level? Why did they rely on the advice of their own lawyers that it was not necessary to ask Congress? We don’t know the answer, but we do know, in retrospect, that it was a huge mistake.

The program took off like a rocket. Deepwater oil production in the gulf shot up from 42 million barrels in 1996 to 348 million in 2004.
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Natural gas production jumped almost tenfold.

But then a funny thing happened: in the
next
two years, 1998 and 1999, all the leases issued to energy companies included the royalty relief but failed to mention the provision that the relief would be reduced if prices rose!
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By 2000, the Interior Department discovered its mistake, and the provision has been included in the leases issued since that date.
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But the mistake had been made—and to this day no one knows why.

There has never been a credible explanation—or, for that matter,
any
explanation—of why the 1998 and 1999 contracts left out that important price threshold provision. From all that anyone can tell, some idiot may simply have forgotten to include the clause in the leases.

So when energy prices began to rise, peaking in the summer of 2008, the government began to feel the loss in revenue that flowed from the inexplicable screw-up. When the number crunchers at Interior tried to increase the royalty payments of energy companies whose leases dated back to 1998 and 1999, the leaseholders told them to go fly a kite. The reduction in royalty relief wasn’t included in their contracts!

Even when oil prices rose as high as $160 a barrel in the summer of 2008 and gas prices followed suit, the lucky oil and gas companies were able to keep drilling for oil under those faulty 1998 and ’99 leases—without paying one cent in royalties to the government!

By 2006, the Interior Department estimates, the government had lost out on collecting
$956 million in royalties
on those 1998 and ’99 leases.
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When the data come in for 2007 and 2008, given the huge increase in energy
prices, the tab will surely be higher. By the time all the oil and gas is pumped from those gulf wells, the Interior Department estimates, it may be out $10 billion.
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Not surprisingly, like true politicians, the Interior Department and Congress are now demanding that the oil and gas companies be gracious enough to overlook the government’s mistake and restore the royalty relief reduction clauses to those 1998 and 1999 leases.

Interior is taking the position that it didn’t
have to
include the underlying language providing that it would increase royalty payments if the price of energy rose. The department says that the federal law, passed in 1995, gives it the right to raise the required payments whether or not they’re specified in their leases.

Alas, the federal courts don’t agree.

Patricia Minaldi, a federal district court judge in Louisiana, ruled that the Interior Department could not make the Kerr-McGee Oil and Gas Corporation, one of the beneficiaries of the 1998 and ’99 leases, pay royalties just because energy prices had risen.
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But Judge Minaldi went further. Not only does the Interior Department not have the right to increase royalty payments for 1998 and 1999 where the leases do not give it that power, she ruled, it cannot even enforce the leases—written in other years—that explicitly provide for increases in royalty payments as the price of energy goes up! Not only will the Feds have to do without the royalties on those 1998 and 1999 leases where they forgot to include price thresholds, but they can’t even demand royalties based on a price threshold at all—even when the provision was included in the contract. Why? Because in imposing the threshold price, the court held, the Interior Department had gone beyond what Congress had authorized!

Sustaining Minaldi’s ruling, a federal appeals court ruled on January 12, 2008, that Kerr-McGee should not have to pay royalties on eight Gulf of Mexico leases from 1996 to 2000! The court ruled that Congress provided that the royalty reduction would be suspended only if the volume of oil and gas from the wells rose above certain thresholds—and that it was illegal for the Interior Department to demand that full royalties be paid if the price went up.
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Barry Russell, president of the Independent Petroleum Association of America, commented on the court ruling, saying:

Lawyers for the Interior Department were livid. They told the media, “If the court’s interpretation of Congress’s action in 1995 is correct, certain leaseholders will be able to produce massive amounts of oil and gas without paying royalties to the United States without regard to the price, perhaps amounting to one of the biggest giveaways of federal resources by Congress in modern history.”
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That’s the problem, folks. According to the
New York Times
, the Government Accountability Office—the congressional watchdog agency—estimated in January 2007 that the government would lose roughly $60 billion over twenty-five years under the court ruling.
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So the decision of the genius lawyers in the Clinton administration—that they could simply insert the price threshold into the Gulf drilling leases without asking Congress to approve the price threshold—turned out to be another mistake.

This time it was a $60 billion mistake!

Naturally, the politicians were furious at their own collective stupidity. Congressman Edward Markey (D-MA), who was in Congress when the original royalty exemption was passed, condemned the court decision in strong language. Speaking in 2007, he said:

The congressman’s outrage was not diminished by the inconvenient fact that it was Congress that left the door open by passing their sloppy 1995 bill.

Senator Jeff Bingaman (D-NM), the chairman of the Senate Energy
Committee, also attacked the court decision, saying that it “will result in the oil and gas industry being able to tap billions of dollars of the public’s natural resources for free, with none of their resulting income shared with the American public.”
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In July 2007, in a bid to cover itself, the House acted to undo its own incompetence by voting to impose a “conservation of resources” fee on oil and gas taken out of the gulf under the 1998–99 leases.
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Typically, the provision was inserted in a farm bill at the last minute on its way through the House. But the Senate failed to approve the amendment—and to this day the government is still being deprived of the royalty revenue.

The new Obama administration and Congress will probably revisit the issue and seek to recoup the royalty revenues through a conservation fee. The power of the federal government to impose taxes is pretty broad, and the courts might uphold such legislation. Or they might conclude—correctly—that the law is simply a retroactive end run around the leases that have already been signed with the energy companies.

In either case, nothing Obama or the Congress can do will recoup the tens of billions of dollars that the government has already lost in royalties on gulf oil and gas—all lost because some knuckleheads on the legal staff of Clinton’s Interior Department failed to ask Congress for price threshold legislation—and because others on the contract-writing staff forgot to insert the requirements into two years of leases.

It looks as though we don’t always have to worry about government officials being bought off by Big Oil. Sometimes they manage to give away our money without even getting any personal favors in return!