The issues are outlined clearly today by the WSJ and NYT editorials on Medicare, although in my heart I don't quite understand why the 2008 election didn't decide this. I guess in a democracy, no issue is decided until the losers believe that pursuing an issue is a waste of time.
I will give the WSJ 4 stars for laying out the crux of the issue. They said do you want a faceless bureaucracy deciding how to ration healthcare or do you want a private market solution. What they didn't say explicitly, is the latter will result in faceless private insurance companies rationing health care and pricing the products to cover the cost of keeping people out of the system and a 20% ROE. But they did identify the key difference between the political parties.
The NYT to its credit tells the Democrats that they need to educate the voters better on how they plan to control the cost of healthcare and not simply run on this year's version of "Death Panels". I cannot resist saying that what is good for the goose, is good for the gander. The Republicans who used the false Death Panel statements deserve to lose because the Ryan plan would fundamentally change Medicare. Instead of a government bureaucracy that you can with difficulty appeal to, you would have a private sector solution that would be incomprehensible and expert at making appeals difficult.
Finally, for today, the NYT states that the property tax cap should be voted down so voters can see the Legislators make the tough decisions on controlling the costs that property taxes pay for. That might work in most states but how does it work in a state where the legislators routinely fail to pass budgets, maintain ethical standards and gerrymander districts so that no incumbent can lose. Until all legislative districts are based upon logical geometric shapes (and I include Congress here) so that candidates have to work from the middle to their partisan point of view, blunt forces will sometimes be needed to control spending.
Thursday, May 26, 2011
Monday, May 23, 2011
AP Poll: 54% & 59% believe Budget Balance possible without touching Entitlements
No Room in the headline for the details. 54% believe that Medicare does not have to be touched and 59% believe that Social Security does not have to be touched in order to balance the budget.
This means that less then 50% of the population understands that there is a problem with entitlements and something must be done. Social Security's problem is over the longer term and The Fiscal Deficit Commission suggested how to do it. Raise the retirement age from 66 to 70 over 35 years and change the inflation rate from Labor Rate increases to CPI. Both reasonable paths if the partisan divide can be bridged.
As I have written now numerous times, something needs to be done for Medicare and the Affordable Health Insurance Act of 2010 ("Obamacare" to its detractors) starts the process of addressing Medicare. Does more need to be done? Almost certainly, but it will only get done if the partisan divide is bridged.
How can the divide be bridged? The Republicans have to allow revenue rates to be raised in an intelligent fashion to give the Democrats the cover to agree to cutting unaffordable (after the revenue increase) elements. The Democrats have to give the Republicans cover by agreeing to spending cuts that will balance the budget eventually after the revenue increases are realized.
This is what the Deficit Reduction Commission was all about and it is time both parties started working on it together instead of fighting over partisan angles.
Of course, I think the Republicans are not up to this because they know that the 2012 - 2016 cycle is their chance to appoint justices that will bury a woman's right to choice. It is unlikely that the older liberal justices will be on the court in 2016 and if Obama fails to win reelection, it is only a matter of time until Roe v Wade is overturned and buried by the a solid conservative majority on the court. This is the real decisive issue for the 2012 election and the Republicans do not want Obama to be able to claim a victory on balancing the budget prior to the election. Their only hope for beating him is the claim of fiscal irresponsibility even when they are not being honest about how to achieve a responsible budget. Democrats are only marginally better so there is a low probability of reasonable progress on this until after January 2013.
This means that less then 50% of the population understands that there is a problem with entitlements and something must be done. Social Security's problem is over the longer term and The Fiscal Deficit Commission suggested how to do it. Raise the retirement age from 66 to 70 over 35 years and change the inflation rate from Labor Rate increases to CPI. Both reasonable paths if the partisan divide can be bridged.
As I have written now numerous times, something needs to be done for Medicare and the Affordable Health Insurance Act of 2010 ("Obamacare" to its detractors) starts the process of addressing Medicare. Does more need to be done? Almost certainly, but it will only get done if the partisan divide is bridged.
How can the divide be bridged? The Republicans have to allow revenue rates to be raised in an intelligent fashion to give the Democrats the cover to agree to cutting unaffordable (after the revenue increase) elements. The Democrats have to give the Republicans cover by agreeing to spending cuts that will balance the budget eventually after the revenue increases are realized.
This is what the Deficit Reduction Commission was all about and it is time both parties started working on it together instead of fighting over partisan angles.
Of course, I think the Republicans are not up to this because they know that the 2012 - 2016 cycle is their chance to appoint justices that will bury a woman's right to choice. It is unlikely that the older liberal justices will be on the court in 2016 and if Obama fails to win reelection, it is only a matter of time until Roe v Wade is overturned and buried by the a solid conservative majority on the court. This is the real decisive issue for the 2012 election and the Republicans do not want Obama to be able to claim a victory on balancing the budget prior to the election. Their only hope for beating him is the claim of fiscal irresponsibility even when they are not being honest about how to achieve a responsible budget. Democrats are only marginally better so there is a low probability of reasonable progress on this until after January 2013.
Friday, May 20, 2011
Caroline Baum & I Agree:
That is almost as unusual as Mitt, Newt & I agreeing.
http://www.bloomberg.com/news/2011-05-19/both-parties-wrong-on-tax-breaks-for-big-oil-commentary-by-caroline-baum.html
http://www.bloomberg.com/news/2011-05-19/both-parties-wrong-on-tax-breaks-for-big-oil-commentary-by-caroline-baum.html
Thursday, May 19, 2011
Oil Tax Shelters and Politics
Well, my friend RedStateVT has pointed out an inconsistency that I must comment on. It turns out both Oil Companies and Mining Companies benefit from tax shelters at the expense of Individual Rate Payers. I was going to castigate Republicans for their lack of support for ending such tax shelters but then it turns out certain Democrats don't want to end the mining breaks.
Wait a minute, isn't curing the deficit a common goal of both parties. Wouldn't it make sense to package Republican and Democratic industries to raise revenue while ending unfair corporate welfare. Of course it would, but then incumbents might be at risk of losing elections. Well, lead and educate the voters.
The fact is that corporate effective tax rates have fallen from 35% to something well less then 20%, while Individuals are somewhere around 31% overall with the 35% top rate. It is time for corporations pay their fair share, especially if the earnings are on shore. That does not have to mean 35% but a well designed tax overhaul (such as that recommended by The Deficit Reduction Commission) could raise revenue while cutting tax rates for all. That would be a good thing. Tackle 30% of the deficit with revenue increases and the other 70% by reducing spending. Yet no politician has really taken up promoting the Deficit Reduction Commission, including its sponsor the President. He should lead and educate the voters, also.
And while we are at it, it makes no sense for Hedge Fund employees to get annual income treated as a capital gain just because it is a "carried interest". If it comes as a salary, it should be treated as ordinary income. If it at risk in an investment and held for more then a year, well then it deserves capital gains treatment.
Wait a minute, isn't curing the deficit a common goal of both parties. Wouldn't it make sense to package Republican and Democratic industries to raise revenue while ending unfair corporate welfare. Of course it would, but then incumbents might be at risk of losing elections. Well, lead and educate the voters.
The fact is that corporate effective tax rates have fallen from 35% to something well less then 20%, while Individuals are somewhere around 31% overall with the 35% top rate. It is time for corporations pay their fair share, especially if the earnings are on shore. That does not have to mean 35% but a well designed tax overhaul (such as that recommended by The Deficit Reduction Commission) could raise revenue while cutting tax rates for all. That would be a good thing. Tackle 30% of the deficit with revenue increases and the other 70% by reducing spending. Yet no politician has really taken up promoting the Deficit Reduction Commission, including its sponsor the President. He should lead and educate the voters, also.
And while we are at it, it makes no sense for Hedge Fund employees to get annual income treated as a capital gain just because it is a "carried interest". If it comes as a salary, it should be treated as ordinary income. If it at risk in an investment and held for more then a year, well then it deserves capital gains treatment.
Tuesday, May 17, 2011
I Agree With Newt & Mitt: Well I Never Thought that Would Happen
O.K., so they don't agree with me that Universal Health Insurance should be the goal, but they do agree that the Ryan Plan is too radical. Thanks to the WSJ today, we now have some facts to support our view that it would lead to dying people in the streets like in the Middle Ages by letting wealth ration healthcare.
Paul Ryan (R. Wisconsin) said on Monday, "Our plan is to give seniors the power to deny business to inefficient providers." i.e. the private sector insurance companies that would be writing the new elderly health care insurance under the Ryan Plan.
Both Newt and Mitt called this too radical. Well, not only do I agree with that, but I think it is impractical and will not work. Many of the elderly do not have the mental ability to understand and differentiate between insurance policies and specific coverages. I have a hard enough time doing this as a non-elderly person because the information is not readily available. Now add in a little feeblemindedness or Alzheimers and no children, and who will make the informed decision for any specific elderly individual. Will they even sign up for a policy or bank (or have someone steal) the money the government sends them. Then the ambulance takes them to the hospital (as an uninsured), gives them treatment (that is passed onto all the insured) and we are back where we were in 2009 with the cost for the insured including the cost for the uninsured except this time it is the elderly as well as everyone else. Or, the uninsured die in the street without treatment.
We have already seen the private sector Health Care Companies protect their profits by denying coverage to those with preexisting conditions. We know they are in business to generate a profit and spend a lot of money to make sure that any claims they pay are valid (and shouldn't be paid by somebody else.) So, they will price the policy to produce a profit and the way they will do that is by denying coverage for things. In other words, ration. Who is likely to be rationed? Those who no longer have the intelligence or wealth to figure things out and get the proper coverage. How is this different from a "Death Panel"? Why is it so bad to have a government panel set national standard for coverage (yes, that will be a form of rationing at some level) and protect the population from the Health Insurance Company's profit protection actions.
Paul Ryan (R. Wisconsin) said on Monday, "Our plan is to give seniors the power to deny business to inefficient providers." i.e. the private sector insurance companies that would be writing the new elderly health care insurance under the Ryan Plan.
Both Newt and Mitt called this too radical. Well, not only do I agree with that, but I think it is impractical and will not work. Many of the elderly do not have the mental ability to understand and differentiate between insurance policies and specific coverages. I have a hard enough time doing this as a non-elderly person because the information is not readily available. Now add in a little feeblemindedness or Alzheimers and no children, and who will make the informed decision for any specific elderly individual. Will they even sign up for a policy or bank (or have someone steal) the money the government sends them. Then the ambulance takes them to the hospital (as an uninsured), gives them treatment (that is passed onto all the insured) and we are back where we were in 2009 with the cost for the insured including the cost for the uninsured except this time it is the elderly as well as everyone else. Or, the uninsured die in the street without treatment.
We have already seen the private sector Health Care Companies protect their profits by denying coverage to those with preexisting conditions. We know they are in business to generate a profit and spend a lot of money to make sure that any claims they pay are valid (and shouldn't be paid by somebody else.) So, they will price the policy to produce a profit and the way they will do that is by denying coverage for things. In other words, ration. Who is likely to be rationed? Those who no longer have the intelligence or wealth to figure things out and get the proper coverage. How is this different from a "Death Panel"? Why is it so bad to have a government panel set national standard for coverage (yes, that will be a form of rationing at some level) and protect the population from the Health Insurance Company's profit protection actions.
Saturday, May 14, 2011
Mitt tried to explain the truth but failed
By now it should have become clear that I believe there are two paths to follow with health care. The Republican Plan to allow wealth and state governments to ration healthcare or the Democrats Plan to have some overall safety net that ignores wealth and will have to ration some stuff though the Oversight Cost Control Panel that the Healthcare Affordability Act provides for.
The former will have poor people suffering in the streets someday while the latter threatens to bankrupt the government's finances if not implemented well.
So here comes Mitt Romney, the designer of the Healthcare Affordability Act for all practical purposes, to explain why it was good for Massachusetts but not for the whole country. He could have said, we don't have as many obese poor people in Mass as there are in the predominantly rural states that vote Republican so Mass can afford it but the U.S. cannot. That would have had an element of truth to it, but he would have insulted all the obese people in Republican states. He could have said, it is a state's right's issue and Medicare and Medicaid should be put under the control of each state. That could have had an element of truth. But how would Florida afford it and the Republican Fat Cats in the rich states don't want all those poor obese people moving from the Republican States to the Democratic States, that would upset the electoral college arithmetic that provides support for not raising taxes.
So here is what I think Mitt was trying to say and didn't want to put the idea squarely out there into the debate because the Republican point of view will lose the 2012 election hands down. It was good for Mass because it got all the uninsured into the insured system and then costs can be controlled. And Mass does have more people with insurance because it is wealthier and has fewer uninsured then the U.S. as a whole. The only way the U.S. can afford it is to raise revenue and ration certain things through Medicare and Medicaid. But rationing is another word for "Death Panels" and the Republicans will not support either revenue increases or Death Panels. So the only path the Republicans are leading us down on health care is either bankruptcy of the system or putting it all in the hands of the private sector insurance companies and letting them ration and make profits and in general provide frustration to the general population. Of course, this path allows the wealthy (and here I mean the really wealthy because if you only have $100,000 to $200,000 to live on in retirement, you won't have enough) to buy extra insurance and access to get around all this. Of course, Mitt understands this but knows the truth won't win the Republican nomination or the 2012 election.
This is not easy for the Democrats to explain either. Medicare for all would provide the highest level of cost control, but that couldn't pass the realty of putting all the Health Insurance Companies out of business. In any case, some rationing will occur eventually in some formal setting as opposed to the way it occurs now based on wealth and access to insurance. But at least they want a middle road. Revenue increases and some basic health care coverage for all. Get the uninsured into the system and figure out a way to reduce emergency room usage for things are not emergencies. Look for other ways to control costs. Malpractice Reform would not hurt either but that is a bill still waiting to be passed.
Sorry for the length again, but this is something I am passionate about. I think in my next career I want to figure out a way to provide affordable (this is a huge issue, $20,000 is affordable for me, but not John Doe who makes $50,000 a year) healthcare for all with minimal rationing, but I don't know enough now to be a real expert. This is a vey complicated subject. However, I do know that obesity and "end of life" desire for low probability "Hail Mary" treatments are probably the biggest hurdle to controlling costs once emergency room access is controlled. Unfortunately, until 2014 we will be making little progress on this and the Republicans would send us back to the starting line in 2013 if they get a chance.
The former will have poor people suffering in the streets someday while the latter threatens to bankrupt the government's finances if not implemented well.
So here comes Mitt Romney, the designer of the Healthcare Affordability Act for all practical purposes, to explain why it was good for Massachusetts but not for the whole country. He could have said, we don't have as many obese poor people in Mass as there are in the predominantly rural states that vote Republican so Mass can afford it but the U.S. cannot. That would have had an element of truth to it, but he would have insulted all the obese people in Republican states. He could have said, it is a state's right's issue and Medicare and Medicaid should be put under the control of each state. That could have had an element of truth. But how would Florida afford it and the Republican Fat Cats in the rich states don't want all those poor obese people moving from the Republican States to the Democratic States, that would upset the electoral college arithmetic that provides support for not raising taxes.
So here is what I think Mitt was trying to say and didn't want to put the idea squarely out there into the debate because the Republican point of view will lose the 2012 election hands down. It was good for Mass because it got all the uninsured into the insured system and then costs can be controlled. And Mass does have more people with insurance because it is wealthier and has fewer uninsured then the U.S. as a whole. The only way the U.S. can afford it is to raise revenue and ration certain things through Medicare and Medicaid. But rationing is another word for "Death Panels" and the Republicans will not support either revenue increases or Death Panels. So the only path the Republicans are leading us down on health care is either bankruptcy of the system or putting it all in the hands of the private sector insurance companies and letting them ration and make profits and in general provide frustration to the general population. Of course, this path allows the wealthy (and here I mean the really wealthy because if you only have $100,000 to $200,000 to live on in retirement, you won't have enough) to buy extra insurance and access to get around all this. Of course, Mitt understands this but knows the truth won't win the Republican nomination or the 2012 election.
This is not easy for the Democrats to explain either. Medicare for all would provide the highest level of cost control, but that couldn't pass the realty of putting all the Health Insurance Companies out of business. In any case, some rationing will occur eventually in some formal setting as opposed to the way it occurs now based on wealth and access to insurance. But at least they want a middle road. Revenue increases and some basic health care coverage for all. Get the uninsured into the system and figure out a way to reduce emergency room usage for things are not emergencies. Look for other ways to control costs. Malpractice Reform would not hurt either but that is a bill still waiting to be passed.
Sorry for the length again, but this is something I am passionate about. I think in my next career I want to figure out a way to provide affordable (this is a huge issue, $20,000 is affordable for me, but not John Doe who makes $50,000 a year) healthcare for all with minimal rationing, but I don't know enough now to be a real expert. This is a vey complicated subject. However, I do know that obesity and "end of life" desire for low probability "Hail Mary" treatments are probably the biggest hurdle to controlling costs once emergency room access is controlled. Unfortunately, until 2014 we will be making little progress on this and the Republicans would send us back to the starting line in 2013 if they get a chance.
Politicians Pander (and do not lead) Again
Both parties used their Saturday Radio Address to address the issue of "high" gasoline prices. (Who listen's to these anyway, I listen to a lot of radio and have never hear one, but thanks to reporters, I always get the gist.)
Anyway, both the President and some Republican bimbo from PA, basically said Drill Baby Drill (not that I ever saw a baby drill, but they do drool) and that will somehow control the price of gasoline. Do they really think that if the U.S. suddenly found 20 bn barrels of oil and sold 1 bn a year that it would have serious effect on the price of gasoline? No!! The BRICS increased usage of gasoline would absorb that in no time at all. The only thing that will control the price of gasoline is less usage of gasoline. Either drive less or get a more fuel efficient car and we can only hope that T. Boon Pickens is right and there is both enough natural gas and an efficient way to have it power a car (both of which have to be proven). So the only person leading on this issue is T. Boon. Everyone else is pretending that drilling helps.
Anyway, there is a lot of natural gas in the shale formations of the U.S., but I wish I could believe my energy experts that it is safe to hydrofragment the shale without polluting the water. Their statements make sense to me when they explain them, but then I see experts who study Pennsylvania hydrofragging and they say it is not clear that the chemicals do not find their way up from 7000 feet down. I don't know what is correct but I wish the experts would figure it out and put it to rest.
Anyway, both the President and some Republican bimbo from PA, basically said Drill Baby Drill (not that I ever saw a baby drill, but they do drool) and that will somehow control the price of gasoline. Do they really think that if the U.S. suddenly found 20 bn barrels of oil and sold 1 bn a year that it would have serious effect on the price of gasoline? No!! The BRICS increased usage of gasoline would absorb that in no time at all. The only thing that will control the price of gasoline is less usage of gasoline. Either drive less or get a more fuel efficient car and we can only hope that T. Boon Pickens is right and there is both enough natural gas and an efficient way to have it power a car (both of which have to be proven). So the only person leading on this issue is T. Boon. Everyone else is pretending that drilling helps.
Anyway, there is a lot of natural gas in the shale formations of the U.S., but I wish I could believe my energy experts that it is safe to hydrofragment the shale without polluting the water. Their statements make sense to me when they explain them, but then I see experts who study Pennsylvania hydrofragging and they say it is not clear that the chemicals do not find their way up from 7000 feet down. I don't know what is correct but I wish the experts would figure it out and put it to rest.
Tuesday, May 10, 2011
Why the Financial Reform Bill was Essential
1st off let me say that I do not hate the big banks. I worked for one (and that is the essence of my point of view here) and I am a shareholder of several. However, enhanced regulation of banking products is essential if the country is avoid a repeat somewhere down the road of 2008.
For those who do not know me personally, I worked in J.P. Morgan's Corporate Risk Management Group when it was founded. I wrote the first credit policy on Credit Default Swaps. It was that policy that led directly to JPM's not having the concentrated exposure to AIG that Goldman Sachs and others had, which in turn necessitated the government rescuing AIG. Concentration of financial risk leads to systemic risk because the financial system cannot be allowed to fail. A failure of the financial system will create a depression because if companies do not have access to bank liquidity, they cut employees. Consumers reduce purchases and a negative cycle begins. I am not sure that any modern country could deal with a depression level of hunger and homelessness. The 1929 depression occurred when the U.S. was still a significant agricultural society and property taxes were not a major source of public sector revenue. Many people could at least feed and house themselves. I cannot imagine what would happen today if we had a depression. Few in our cities could find food or maintain their homes with property taxes due.
There is no way to construct a modern financial system without having too big to fail institutions. Consumers want their bank to offer them free ATM's nationwide. Parents and students love the convenience of their bank having offices at home and school. Corporations like to deal with just a few financial institutions who can serve their needs globally. Bond investors like to deal with no more then 10 institutions for the bulk of their trading because they know that will create the most efficient markets for them. Bond issuers want to know that their underwriters can distribute their offer globally and achieve the lowest yield for them. This desire for broader coverage by single financial institutions means that they will achieve efficiencies for customers and shareholders by becoming bigger. It serves no social purpose to keep them small and inefficient.
However, the nature of banking and markets means that these large financial institutions will have large relationships with each other and create the potential for a systemic meltdown if they all lose access to funding at the same time. Access to funding and the risk of no access is the systemic risk. That is why the Federal Reserve (and all other central banks) have being the lender of last resort as a core function. Central Banks exist to keep the banking system functioning. The US and other governments did exactly what they should have in 2008/09.
What will prevent systemic risk from materializing? Sound regulation of anything that could cause a systemic event. There are not that many things that can cause a systemic lose of confidence in banks. My list includes only too little capital, too much focus on statistical measures of risk and too many losses from credit events. The regulators were already focused on two of these issues, and they are now focused on balancing nominal exposures and statistical risk measures. What they missed and what the Financial Reform bill properly focuses on is consumer finance. No one thought that a diversified pool of consumer finance could create systemic risk. But all you need is for 10% to 20% of consumers to all pile into something poorly structured and you have a systemic problem.
Housing is both a consumer product and a societal Ponzi Scheme in that it is based upon the availability of mortgage financing. If there is no available financing for people looking to buy a home, few can sell their home. You can own your home free and clear and be as conservative as you want to be but if there is no financing market, you will not get what you expect when you go to sell. Add to that some significant percent of people getting aggressive on buying homes they cannot afford and too many homes being built; when it collapses, as it will, every homeowner loses. If you want to sell your house when you need the money, tough luck. Nothing is more systemic then housing and the financing of home purchases. It must be regulated.
When I was with JPM, I became convinced that modern risk management tools would prevent concentrations of risk from developing because I thought the old measure of managing risk would remain while being augmented by this new technology. Instead, except at JPM and Northern Trust, these tools allowed more risk to be taken by placing an over reliance on the benefits of diversification and low correlation between risks. When everyone relies upon the same tools, everyone can make the same mistake increasing the correlation and reducing the diversification. Good regulation is necessary to prevent those animal spirits from harming society as a whole and that is what he Financial Reform Bill was passed to accomplish.
For those who do not know me personally, I worked in J.P. Morgan's Corporate Risk Management Group when it was founded. I wrote the first credit policy on Credit Default Swaps. It was that policy that led directly to JPM's not having the concentrated exposure to AIG that Goldman Sachs and others had, which in turn necessitated the government rescuing AIG. Concentration of financial risk leads to systemic risk because the financial system cannot be allowed to fail. A failure of the financial system will create a depression because if companies do not have access to bank liquidity, they cut employees. Consumers reduce purchases and a negative cycle begins. I am not sure that any modern country could deal with a depression level of hunger and homelessness. The 1929 depression occurred when the U.S. was still a significant agricultural society and property taxes were not a major source of public sector revenue. Many people could at least feed and house themselves. I cannot imagine what would happen today if we had a depression. Few in our cities could find food or maintain their homes with property taxes due.
There is no way to construct a modern financial system without having too big to fail institutions. Consumers want their bank to offer them free ATM's nationwide. Parents and students love the convenience of their bank having offices at home and school. Corporations like to deal with just a few financial institutions who can serve their needs globally. Bond investors like to deal with no more then 10 institutions for the bulk of their trading because they know that will create the most efficient markets for them. Bond issuers want to know that their underwriters can distribute their offer globally and achieve the lowest yield for them. This desire for broader coverage by single financial institutions means that they will achieve efficiencies for customers and shareholders by becoming bigger. It serves no social purpose to keep them small and inefficient.
However, the nature of banking and markets means that these large financial institutions will have large relationships with each other and create the potential for a systemic meltdown if they all lose access to funding at the same time. Access to funding and the risk of no access is the systemic risk. That is why the Federal Reserve (and all other central banks) have being the lender of last resort as a core function. Central Banks exist to keep the banking system functioning. The US and other governments did exactly what they should have in 2008/09.
What will prevent systemic risk from materializing? Sound regulation of anything that could cause a systemic event. There are not that many things that can cause a systemic lose of confidence in banks. My list includes only too little capital, too much focus on statistical measures of risk and too many losses from credit events. The regulators were already focused on two of these issues, and they are now focused on balancing nominal exposures and statistical risk measures. What they missed and what the Financial Reform bill properly focuses on is consumer finance. No one thought that a diversified pool of consumer finance could create systemic risk. But all you need is for 10% to 20% of consumers to all pile into something poorly structured and you have a systemic problem.
Housing is both a consumer product and a societal Ponzi Scheme in that it is based upon the availability of mortgage financing. If there is no available financing for people looking to buy a home, few can sell their home. You can own your home free and clear and be as conservative as you want to be but if there is no financing market, you will not get what you expect when you go to sell. Add to that some significant percent of people getting aggressive on buying homes they cannot afford and too many homes being built; when it collapses, as it will, every homeowner loses. If you want to sell your house when you need the money, tough luck. Nothing is more systemic then housing and the financing of home purchases. It must be regulated.
When I was with JPM, I became convinced that modern risk management tools would prevent concentrations of risk from developing because I thought the old measure of managing risk would remain while being augmented by this new technology. Instead, except at JPM and Northern Trust, these tools allowed more risk to be taken by placing an over reliance on the benefits of diversification and low correlation between risks. When everyone relies upon the same tools, everyone can make the same mistake increasing the correlation and reducing the diversification. Good regulation is necessary to prevent those animal spirits from harming society as a whole and that is what he Financial Reform Bill was passed to accomplish.
Saturday, May 7, 2011
Can the Government Run Health Care?
One of my conservative (in today's definitions) followers asked the question of whether the government can run anything well?
I think the proper question is what does it take for the government to run something well?
Amtrak is not well run in terms of the bottom line, but they are not free to choose what lines they run because of politicians. The Northeast Corridor runs well and is profitable. So the issue is not Government ownership, but political interference in the demands placed upon Amtrak.
FEMA was not well run under the Bush Administration because they put a leader in there whose mandate was to reduce the costs and hopefully dismantle FEMA. Then along comes Katrina, and FEMA fails. Now FEMA has a leader who believes in its mission and FEMA is getting praise from the Tornado victims.
The TVA, NIH, and the CDC are all run by the government and generally well run. Even Air Traffic Control, despite the sleeping controller problem, keeps air traffic the safest form of transport.
The military is generally thought the best run part of the government, but even there waste has been well documented; and there is the Army Term "FUBAR". But no one is thinking about dismantling the Army because it is inefficient sometimes. No one is thinking about defunding the military because a majority believe it is necessary. A majority of this country believe in Medicare and would believe in Medicare for all it they thought it cost efficient.
Governments are run by people. People do not always do things well. This is as true in the private sector as it is in the government. Witness the housing bubble and many corporate bankruptcies in all economic conditions. People make mistakes.
The issue is not who runs health care. I have yet to see any critical mass support every health decision being run by a government or insurance bureaucrat. So health care will be run by the consumers and the providers. The issue is the cost of these services. Health care expense is far too complicated for me to have a detailed understanding of it. The Health Care Reform Bill of 2010 has many concepts for controlling costs that should be successful, if Congress does not overturn them. (I am relying on my Public Health Dr sister-in-law and the Congressional Budget Office for that statement.) However, the VA Hospitals are generally cited as a model of efficient health care delivery. So there is an example that the government can run health care.
Government's do things well when departments are funded and have good leadership that promote a cost efficient delivery of the services being rendered. Conservatives could add productively to the debate by separating the issue of whether a service should be provided from demanding efficient delivery of the services. Once a service is legislated it needs to be well run. If a party loses the vote on the issue of providing the service, they should move on and demand that the service be delivered in the most cost effective manner.
I'm sorry that I am having trouble finding a more succinct manner to express these thoughts.
I think the proper question is what does it take for the government to run something well?
Amtrak is not well run in terms of the bottom line, but they are not free to choose what lines they run because of politicians. The Northeast Corridor runs well and is profitable. So the issue is not Government ownership, but political interference in the demands placed upon Amtrak.
FEMA was not well run under the Bush Administration because they put a leader in there whose mandate was to reduce the costs and hopefully dismantle FEMA. Then along comes Katrina, and FEMA fails. Now FEMA has a leader who believes in its mission and FEMA is getting praise from the Tornado victims.
The TVA, NIH, and the CDC are all run by the government and generally well run. Even Air Traffic Control, despite the sleeping controller problem, keeps air traffic the safest form of transport.
The military is generally thought the best run part of the government, but even there waste has been well documented; and there is the Army Term "FUBAR". But no one is thinking about dismantling the Army because it is inefficient sometimes. No one is thinking about defunding the military because a majority believe it is necessary. A majority of this country believe in Medicare and would believe in Medicare for all it they thought it cost efficient.
Governments are run by people. People do not always do things well. This is as true in the private sector as it is in the government. Witness the housing bubble and many corporate bankruptcies in all economic conditions. People make mistakes.
The issue is not who runs health care. I have yet to see any critical mass support every health decision being run by a government or insurance bureaucrat. So health care will be run by the consumers and the providers. The issue is the cost of these services. Health care expense is far too complicated for me to have a detailed understanding of it. The Health Care Reform Bill of 2010 has many concepts for controlling costs that should be successful, if Congress does not overturn them. (I am relying on my Public Health Dr sister-in-law and the Congressional Budget Office for that statement.) However, the VA Hospitals are generally cited as a model of efficient health care delivery. So there is an example that the government can run health care.
Government's do things well when departments are funded and have good leadership that promote a cost efficient delivery of the services being rendered. Conservatives could add productively to the debate by separating the issue of whether a service should be provided from demanding efficient delivery of the services. Once a service is legislated it needs to be well run. If a party loses the vote on the issue of providing the service, they should move on and demand that the service be delivered in the most cost effective manner.
I'm sorry that I am having trouble finding a more succinct manner to express these thoughts.
This is one reason leaders need to lead!
I just took a Bernie Sanders poll. Notwithstanding Bernie's Socialist base, the results of the poll were shocking. Of the 133 respondents, only 4 (including me) could correctly identify the cause of the rise in oil prices as supply and demand. 116 blamed Wall St or Oil Company profiteering. Now I don't support tax subsidies for oil companies, but commodities are not subject to corporate pricing manipulation. The last time I looked, only OPEC and acts of war ever took supply off the market. And when demand dropped in the recession, prices fell. So where is the price manipulation coming from? Pandering to peoples conspiracy theories is not leadership and once again both parties are to blame.
We can't drill our way to lower prices and we cannot get lower prices by banning commodities markets from taking positions on the future direction of prices!!
We can't drill our way to lower prices and we cannot get lower prices by banning commodities markets from taking positions on the future direction of prices!!
Friday, May 6, 2011
Movie Reviews 5/5/11
Yesterday was the 4th or 5th consecutive day of rain here in BTV. It's rained so much, that with the snow pack melt, Champ the Lake Monster, who greets people coming off the ferry with his feet on the ground, is now under water up to his neck. While his concrete will survive, I am not sure about the restaurant that is 100' further out in the lake at present. So much for dockside dining, but I digress.
We went to see Of Gods and Men yesterday for the 1st matinee. This is one benefit of retirement. Movies in the afternoon. It was well worth seeing to see how a life of faith can overcome fear. But the movie also shows how when society doesn't support hope for all, desperation can drive intelligent people into using religion as a violent means to an end and kill even those whom they respect in the name of their cause.
Then last night, we watched The Adventures of Priscilla, Queen of the Desert. This 1994 Australia film should be a cult classic. 3 acting studs (Terrence Stamp, Guy Pearce and Hugo Weaving) portray drag queens and a transsexual in a road trip across the outback to Alice Springs. Very funny and I recommend a watch with two thumbs up.
We went to see Of Gods and Men yesterday for the 1st matinee. This is one benefit of retirement. Movies in the afternoon. It was well worth seeing to see how a life of faith can overcome fear. But the movie also shows how when society doesn't support hope for all, desperation can drive intelligent people into using religion as a violent means to an end and kill even those whom they respect in the name of their cause.
Then last night, we watched The Adventures of Priscilla, Queen of the Desert. This 1994 Australia film should be a cult classic. 3 acting studs (Terrence Stamp, Guy Pearce and Hugo Weaving) portray drag queens and a transsexual in a road trip across the outback to Alice Springs. Very funny and I recommend a watch with two thumbs up.
Justification for the Name of this Blog and why David Brooks Gets the Big $
This morning's column by David Brooks points out that the Founding Fathers split the new country's institutions to reflect the need to balance democracy (the voice of the people) with their belief that a republic needs institutions to improve the character and provide judgment to the people. That the people can run amok and need to be controlled. Or as Irving Kristol is quoted "The common man is not a fool and the proof is that he has such modest faith in himself."
Kristol goes on in that essay to say the phrase "public spirited" has been changed from it original definition of "curbing one's passions and moderating one's opinions in order to achieve a large consensus that will insure domestic tranquillity." Now it tends to mean "someone who has passionate opinions about public matters."
This writer believes good government is necessary to a fair society. People can disagree about where to draw the exact line on where fairness becomes excessive, but unless one wants to dismantle entire functions of the state, there has to be a common element to all arguments about government that we must pay for the government that we want to have.
No discussion of the current federal fiscal position can be "fair" to all government activities without acknowledging that we have yet to pay for the War on Terror and either we do it by slashing government services (and tell the people directly that is what is being done) or we do it by raising revenues. There is certainly spending that this writer would like to see cut. All agricultural subsidies, and corporate tax shelters for a start. On the other hand, I would like to end the double taxation of dividends (once when the company pays taxes and then when the stockholders pay taxes, but that is a point for another blog).
I personally liked the NY Times electronic balance the budget game from 6 or 8 months ago. It showed clearly that unless one wants to slash federal spending on health care or defense and other "discretionary" items, revenues have to be increased. They can be increased by raising taxes or ending tax shelters. The budget deficit commission really focused on the latter with a goal of lowering corporate tax rates in particular.
There are two reasons companies put jobs overseas. One is to be globally competitive in each market (and the growth in this world is in the BRICS) and the other is to manage taxes. The U.S. cannot afford to have a significantly higher corporate tax rate than the rest of the world. But U.S. multinational companies generally do not pay the listed tax rate because of the global structure of taxes. Small companies pay the listed rate and that does cost jobs.
However, we cannot blindly reduce tax rates without paying attention to the tax revenues that are needed to pay for necessary services, including paying for past deficits. Bush I raised taxes and they paid for the Reagan deficits. Bush II spend the inherited budget surplus on tax cuts but then did not pay for the War on Terror. This profligate government spending (and incredibly poor regulation of the financial markets) led directly to the housing boom and bust and our current situation.
The Congress would do us all a big favor if they started the negotiations with the acknowledgment that the U.S. is going to continue to pay for health care, defense, transportation and other things while figuring how what specific spending cuts and revenue increases can achieve the goal of a balanced budget by 2014 or whenever. If you aim for 2012, we will be in an even more severe jobless position then we are now. So practicality is essential for progress and the essence of practicality is that we are a Republic managed by the process of democracy. Both sides should engage the other with respect for, the voters, that through 230 years of existence, have put both parties in charge to generate the government that provides certain things that must be paid for. The mantra that there will be no tax revenue increases is disrespectful to that history. The mantra that there will be no cuts to social services or other "favored" spending is disrespectful to that history also. Spending cuts and revenue increases are necessary and both are compatible with the notion of "public spiritedness".
Elected politicians represent the Republic and need to lead and educate the democracy, not simply follow the wishes of their electorate. Both parties could do this better.
Kristol goes on in that essay to say the phrase "public spirited" has been changed from it original definition of "curbing one's passions and moderating one's opinions in order to achieve a large consensus that will insure domestic tranquillity." Now it tends to mean "someone who has passionate opinions about public matters."
This writer believes good government is necessary to a fair society. People can disagree about where to draw the exact line on where fairness becomes excessive, but unless one wants to dismantle entire functions of the state, there has to be a common element to all arguments about government that we must pay for the government that we want to have.
No discussion of the current federal fiscal position can be "fair" to all government activities without acknowledging that we have yet to pay for the War on Terror and either we do it by slashing government services (and tell the people directly that is what is being done) or we do it by raising revenues. There is certainly spending that this writer would like to see cut. All agricultural subsidies, and corporate tax shelters for a start. On the other hand, I would like to end the double taxation of dividends (once when the company pays taxes and then when the stockholders pay taxes, but that is a point for another blog).
I personally liked the NY Times electronic balance the budget game from 6 or 8 months ago. It showed clearly that unless one wants to slash federal spending on health care or defense and other "discretionary" items, revenues have to be increased. They can be increased by raising taxes or ending tax shelters. The budget deficit commission really focused on the latter with a goal of lowering corporate tax rates in particular.
There are two reasons companies put jobs overseas. One is to be globally competitive in each market (and the growth in this world is in the BRICS) and the other is to manage taxes. The U.S. cannot afford to have a significantly higher corporate tax rate than the rest of the world. But U.S. multinational companies generally do not pay the listed tax rate because of the global structure of taxes. Small companies pay the listed rate and that does cost jobs.
However, we cannot blindly reduce tax rates without paying attention to the tax revenues that are needed to pay for necessary services, including paying for past deficits. Bush I raised taxes and they paid for the Reagan deficits. Bush II spend the inherited budget surplus on tax cuts but then did not pay for the War on Terror. This profligate government spending (and incredibly poor regulation of the financial markets) led directly to the housing boom and bust and our current situation.
The Congress would do us all a big favor if they started the negotiations with the acknowledgment that the U.S. is going to continue to pay for health care, defense, transportation and other things while figuring how what specific spending cuts and revenue increases can achieve the goal of a balanced budget by 2014 or whenever. If you aim for 2012, we will be in an even more severe jobless position then we are now. So practicality is essential for progress and the essence of practicality is that we are a Republic managed by the process of democracy. Both sides should engage the other with respect for, the voters, that through 230 years of existence, have put both parties in charge to generate the government that provides certain things that must be paid for. The mantra that there will be no tax revenue increases is disrespectful to that history. The mantra that there will be no cuts to social services or other "favored" spending is disrespectful to that history also. Spending cuts and revenue increases are necessary and both are compatible with the notion of "public spiritedness".
Elected politicians represent the Republic and need to lead and educate the democracy, not simply follow the wishes of their electorate. Both parties could do this better.
Tuesday, May 3, 2011
Catching Up After 2 months of Retirement
For any of you who have followed me on Twitter, much of this posting will be old news. I started out my sabbatical by taking advantage of the snowy March and skiing 7 days: 4 in Vermont and 3 at Jackson Hole. Lots of powder and I had a great time finding the steepest terrain that I felt I could go down safely. That was great for the 1st 6 days out. Unfortunately, the last day out at Mad River Glen, I did not have my weight sufficiently back on the Paradise Waterfall and I managed to pitch forward down the cliff landing on my left front shoulder, bouncing onto my back and sliding headfirst down the fall line between a couple of trees. While the vision of sliding headfirst into a tree and wondering if my helmet would suffice went through my brain, I realized my skis were still on and I needed to get them downhill. I managed to do this and stop after sliding about 100 feet on the steep pitch. Needless to say, my ski season was done and I carefully skied to the bottom after collecting my pole that I left at the spot of the initial landing.
The next day I went to a walk-in medical care facility and determined that my clavicle was slightly separated and that rest was the best immediate care followed by physical therapy. With that diagnosis, my better half and I went off to Portugal for almost two weeks. Sun, heat and lots of walking while we learned about Portugese food, wine and history. Found two very worthwhile ancient spots. The 1000 year old Moorish Castle in Sintra and 2000 year old Roman Ruins in Conimbriga, near Coimbra. Porto was my favorite city and the best food was found at Manifesto in Lisbon. If you ever go to Porto, stay in the Duoro Guest House, the best B&B we have ever stayed at. I do not consider the Inn at Little Washington a B&B because they serve dinner. Here are the pictures from Portugal.
(technical glitch, they are up on mobile me but I need to figure out how to link them)
Upon our return to the U.S., most of my energy has been aimed at getting exercise to maintain my weight loss program and organizing my part of the upcoming downsizing when we return to being full time NY residents.
The aim of this blog most of the time will be to update friends on travel and comment on partisan absurdities that I see out in the world.
Anyway, I cannot let health care reform go without a comment since the Republicans decided to use a voucher system to control health care costs at a macro level once 55 year olds reach 65 and leave everyone younger to see what happens to the balance between affording medical care and paying for the basics. There is no question that Medicare and Medicaid need to have their costs controlled urgently, but is setting up the system so that we return to a society where the poor must choose between a roof, food, and health care really where we want to be as a nation. Do we want to be a land of Tiny Tim's and Scrooges? That is where I believe vouchers will take us. Shouldn't we at least make an effort to control health care costs first as the Health Care Reform Bill attempts? The thing breaking Medicare is spending on the last 40 days of life, but the Republicans' belittlement of Health Care Reform with the Claim of Death Panels has taken that off the table. Education on how to die balancing opportunity to continue living with reality is absolutely necessary. It should be a family decision, but the Republican Plan would turn it back over to the Insurance Companies and they do not do a good job. Actually, at this time, no category does a good job.
And while we are at balancing the budget, shouldn't we start to pay for the War on Terror with some tax increases? This is the 1st war the U.S. has ever tried to conduct without raising taxes. For sure, tax simplification would be a good 1st step over raising the tax rates and ending corporate subsidies while cutting the corporate tax rate would be a good 2nd step. However, the one certainty is that a balanced budget requires both cutting spending and raising revenue as the Deficit Reduction Committee recommended. The sooner the national dialogue gets there the better.
These will be shorter in the future.
The next day I went to a walk-in medical care facility and determined that my clavicle was slightly separated and that rest was the best immediate care followed by physical therapy. With that diagnosis, my better half and I went off to Portugal for almost two weeks. Sun, heat and lots of walking while we learned about Portugese food, wine and history. Found two very worthwhile ancient spots. The 1000 year old Moorish Castle in Sintra and 2000 year old Roman Ruins in Conimbriga, near Coimbra. Porto was my favorite city and the best food was found at Manifesto in Lisbon. If you ever go to Porto, stay in the Duoro Guest House, the best B&B we have ever stayed at. I do not consider the Inn at Little Washington a B&B because they serve dinner. Here are the pictures from Portugal.
(technical glitch, they are up on mobile me but I need to figure out how to link them)
Upon our return to the U.S., most of my energy has been aimed at getting exercise to maintain my weight loss program and organizing my part of the upcoming downsizing when we return to being full time NY residents.
The aim of this blog most of the time will be to update friends on travel and comment on partisan absurdities that I see out in the world.
Anyway, I cannot let health care reform go without a comment since the Republicans decided to use a voucher system to control health care costs at a macro level once 55 year olds reach 65 and leave everyone younger to see what happens to the balance between affording medical care and paying for the basics. There is no question that Medicare and Medicaid need to have their costs controlled urgently, but is setting up the system so that we return to a society where the poor must choose between a roof, food, and health care really where we want to be as a nation. Do we want to be a land of Tiny Tim's and Scrooges? That is where I believe vouchers will take us. Shouldn't we at least make an effort to control health care costs first as the Health Care Reform Bill attempts? The thing breaking Medicare is spending on the last 40 days of life, but the Republicans' belittlement of Health Care Reform with the Claim of Death Panels has taken that off the table. Education on how to die balancing opportunity to continue living with reality is absolutely necessary. It should be a family decision, but the Republican Plan would turn it back over to the Insurance Companies and they do not do a good job. Actually, at this time, no category does a good job.
And while we are at balancing the budget, shouldn't we start to pay for the War on Terror with some tax increases? This is the 1st war the U.S. has ever tried to conduct without raising taxes. For sure, tax simplification would be a good 1st step over raising the tax rates and ending corporate subsidies while cutting the corporate tax rate would be a good 2nd step. However, the one certainty is that a balanced budget requires both cutting spending and raising revenue as the Deficit Reduction Committee recommended. The sooner the national dialogue gets there the better.
These will be shorter in the future.
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