Kevin Rants

Citizen McCain, Apostle of Voodoo Economics

For those thinking it might be time to get interested in the November elections, Citizen McCain has begun to lay down the pillars of his economic thinking.

Let's start with his plans for the federal budget . . .

Mr. McCain’s plan would appear to result in the biggest jump in the deficit, independent analyses based on Congressional Budget Office figures suggest. A calculation done by the nonpartisan Tax Policy Center in Washington found that his tax and budget plans, if enacted as proposed, would add at least $5.7 trillion to the national debt over the next decade.

The centerpiece of Mr. McCain’s economic plan is a series of tax cuts that would largely benefit corporations and the wealthy. He is calling for cutting corporate taxes by $100 billion a year. Eliminating the alternative minimum tax, which was created to apply to wealthy taxpayers but now also affects some in the middle class, would reduce revenues by $60 billion annually. He also would double the exemption that can be claimed for dependents, which would cost the government $65 billion.

“High tax rates are driving many businesses and jobs overseas — and, of course, our foreign competitors wouldn’t mind if we kept it that way,” Mr. McCain said, laying out his economic plan this month in Pittsburgh. “We’re going to get rid of that drag on growth and job creation.”

There are a couple of obvious problems here.

1. There's no evidence that I've seen that the current US tax rates are driving jobs overseas, because . . .
2. Large, multi-national companies spread their tax liabilities all over the world using every trick in the book, often resulting in . . .
3. Paying little or no taxes in the US. Prime examples include Haliburton, Accenture, and pretty much every other large company with its snout in the public trough

And what about the biggest off-budget item of them all?

On the expenditure side, Mr. McCain has called not only for continuing an open-ended deployment of troops in Iraq, but also for spending $15 billion annually to expand the Army and the Marine Corps and to improve health care for veterans, among other programs.

In case you somehow missed it, Candidate McCain is on record supporting a 100 year involvement in Iraq. So add some more trillions to the pile.

Embedded Video

So how to pay for this sea of Red Ink?

Mr. McCain’s advisers have said the new tax cuts would be paid for by eliminating earmarks and making large spending cuts, but they have not identified specifics. And they have spoken vaguely about making entitlement programs like Social Security and Medicare less costly for the government. Mr. McCain’s chief economic adviser, Douglas Holtz-Eakin, said the campaign had simply presented its vision of what the tax code should look like and noted that some of the proposals would be phased in.

During the current Republican presidency, those same programs marked for elimination or curtailment grew at an unprecedented rate. Given the sour mood in the country, the likelihood they'll be cut is about nil.

“I voted against the tax cuts because of the disproportionate amount that went to the wealthiest Americans,” Mr. McCain said in 2004. “I would clearly support not extending these tax cuts in order to help address the deficit.”

In 2001 and 2003, Mr. Bush pushed through Congress tax cuts totaling nearly $2 trillion. The first set lowered income and estate taxes, and the second focused mostly on capital gains and dividends.

The McCain campaign does not figure the costs of extending the tax cuts into its deficit projections, although the Congressional Budget Office estimates that it would cost an extra $2.2 trillion over the next decade.

Oh. And when will he balance the budget?

When Mr. McCain outlined his tax cut plan, he backed away from his pledge to balance the budget during his first term, but said that he would do so by the end of his second term. And in an interview last Sunday on “This Week With George Stephanopoulos” on ABC, Mr. McCain said he would push ahead with his tax cuts even if Congress did not approve his spending cuts.

For those keeping track, this is exactly the timetable that President Bush offered . . . "during my last year in office." And this on health care . . .

Mr. McCain’s health care plan would shift the emphasis from insurance provided by employers to insurance bought by individuals, to foster competition and drive down prices. To do so he is calling for eliminating the tax breaks that currently encourage employers to provide health insurance for their workers, and replacing them with $5,000 tax credits for families to buy their own insurance.

His proposal to move away from employer-based coverage was similar to one that President Bush pushed for last year, to little effect. And his call for expanding coverage through market-based competition is in stark contrast to the Democrats’ proposals to move toward universal health care coverage, with government subsidies to help lower-income people afford their premiums.

I realize that this sort of "let a million flowers bloom" rhetoric is appealing to those of us who are inherently suspicious of governmental involvement in nearly everything, but I have a question. Is it time to be done with faith-based economics yet?

So let's see, what will happen if we take big buyers with massive purchasing power out of the market and replace them with millions of under-informed, overwhelmed, and increasingly less economically able buyers.

Scenario A

• New providers will leap at the opportunity to compete for all those new buyers.
• Prices will go down as choices and transparency go up.
• Unhappy patient/customers will migrate away from bad providers and towards good providers.
• Other players in the healthcare food chain will see the benefits of all this unfettered competition and will similarly jump in with lower drug prices, lower hospital prices, greater choice, and so on.

Scenario B

• Providers will proliferate products in order to cherry pick the best customers, meaning the ones least likely to use the service. Confusion will abound. More insidiously, the less desirable customers, the ones who need health care, will be thrown into a very expensive risk pool they can't afford to be in. In the end, the taxpayers will have to jump in and we'll be right back to square one.
• Even assuming all that competition does work, the providers won't stand for it. So the industry will continue to consolidate in the name of "efficiency," eliminating choice and driving up prices.
• One or more of the big providers will fail, because along with free markets the true believers advocate for minimal oversight and regulation . . . let the market sort it out. That will unleash another wave of massive costs onto the taxpayers back.

Don't believe me? I give you exhibit A: The Airline Industry. Or exhibit B, look at what's happened to pensions in this country.

Democrats and their proposals have their own problems. I just find it astonishing that the so many Red State voters are so eager to vote against their short and long term economic interests in the name of ideology.

Blogged with the Flock Browser

Tags: JohnMcCain, Voodoo Economics, 100 years, Iraq, Health Care, Budget Deficit

Thoughts on David Einhorn's Brilliant Analysis of the Credit Mess

You probably didn't hear about it and don't know who he is, but David Einhorn's speech last year at the Helbrunn Center for Graham & Dodd Investing ranks as a must read if you want some clear and concise analysis of the current credit mess. The PDF text of the full  presentation is at Naked Shorts. Here's the lead . .

What strikes me the most about the recent credit market crisis is how fast the world is trying to go back to business as usual.  In my view, the crisis wasn’t an accident.  We didn’t get unlucky.  The crisis came because there have been a lot of bad practices and a lot of bad ideas. Securitization is a mediocre idea.  Re-securitization of already securitized assets into a CDO is a bad idea. Re-securitization of CDOs into CDO-squared is a really bad idea.  So is funding a pool of long-term illiquid assets with very short-term funding in the so called asset backed commercial paper market. And as I will get to in a moment, it is a horrendous idea to delegate most of the responsibility for assessing credit risk to a group of credit rating agencies, paid for by the issuers rather than the buyers of bonds.

This crisis came for exactly the right reason.  There is a big flaw in the structure of our credit markets.  The bad structure induced lenders to take imprudent risks and make imprudent loans, which, of course led to losses.  What is unique about this crisis compared to others is that the losses are in illiquid, opaque structures scattered around the world.  Why should anyone be surprised?  We got what we deserved.   

Last Saturday’s Wall Street Journal reported that the big fear that the US Treasury department is working to avoid is, “the danger that dozens of huge bank-affiliated funds will be forced to unload billions of dollars in mortgage-backed securities and other assets, driving down their prices in a fire sale. That could force big write-offs by banks, brokerages and hedge funds that own similar investments and would have to mark them down to the new, lower market prices.”   So the fear is that the new prices are actually disclosed.  This is the “don’t ask-don’t tell” method of security valuation.

In my view, the credit issues aren’t just about subprime.  Subprime is what the media says.  Subprime is what parts of our financial establishment say.  Subprime is about them – those people and the people who made foolish loans to them.  The word “Subprime” is pejorative.  Subprime is not about us, for we are not subprime.  How convenient to be able to pass the blame.

There has been much talk from politicians and pundits about predatory lending – that is making loans at high rates to people who couldn’t reasonably be expected to pay them back.  They are right, that is a bad practice, but that is not what’s shaking the markets.  At issue today is that lenders of all sorts have lent too much money and did not demand enough interest to compensate them for the risks they took.  There has been a colossal undercharging for credit across the board. 

It goes on like that, calling a spade a spade. The naked truth is that the captains of finance took unreasonable risks, spurred on by non-existent oversight and no real personal downside if they busted the pinata (which they did). In a sign of rushing backwards from change, the mortgage business is mounting a full scale assault on the latest round of attempts to introduce some transparency and standards into what has become a game of liars poker. See this from the NYT . . .

The plan presented by the Fed was proposed by its chairman, Ben S. Bernanke, and Randall S. Kroszner, a former White House economist in the Bush administration who is now a Fed governor and leads the Fed’s consumer and community affairs committee.

The plan would not cover existing mortgages but would apply only to new ones. It would force mortgage companies to show that customers can realistically afford their mortgages. It would require lenders to disclose the hidden fees often rolled into interest payments. And it would prohibit certain types of advertising considered misleading.

The Fed is expected to issue final rules this summer.

Earlier this month, as the comment period was about to close, the Fed was deluged with more than 5,000 comments, mostly from lenders who said the proposals could affect loans that have not presented problems. Some bankers and brokers also said the rules would discourage them from lending to some creditworthy borrowers.

I can remember what it was like to get my first mortgage a couple of decades ago. It was a lot of work. It was a lot of paper. EVERYTHING had to be explained. But it got done. I can promise you with 99.99999% certainty, the contention that "the rules would discourage them from lending to some creditworthy borrowers" is a complete crock. People will still want to buy and finance homes. It's a very, very big business. Someone will meet the need.

As to the part about cost rising, they should. I realize that's profoundly anti-consumer, but I can't think of a single good reason why risk shouldn't be properly priced. Governments distort the price of things all the time for all sorts of reasons. Exhibit one is the cost of gasoline at the pump in the US . . . it's not even close to what it should be given the huge bill the Chinese and Gulf States finance every year so that our vast military can make the Gulf safe for the flow of oil. Sorry, I digress.

Nothing about the debt markets for the past five years has been properly priced. As obnoxious as lenders find the various regulators, they clearly were AOL. So whatever the compliance costs, they were, in retrospect, too low. Same with the ratings firms, whose negligence borders on the criminal. It's not that the money shape-shifters weren't taking their vig every time something was transmuted into something else. But none of that drag was staying home in the form of capital. And yes missy, at the end of the day, the mess would be less messy if the firms had spent less energy trying to leverage their capital to the nth degree in service and more energy running sound businesses.

As Ben Stein points out . . .

The S.E.C. told me that all of its actions were helpful to investors and that no one could have prevented the Bear Stearns collapse because it was caused by liquidity issues, not capital issues. My respectful response is that if Bear were thoroughly well capitalized, why would liquidity issues come up at all?

   

Blogged with the Flock Browser

Tags: BenStein, David Einhorn, Helbrunn Center for Graham & Dodd Investing, CDO, Securitization, Sub Prime, Decision Making

Our Socialized Health Care

There was a plastic surgeon named Maxwell Maltz who wrote a book called Psycho-Cybernetics. Among other things, he talked about how complex systems are controlled by relatively simple mechanisms. You just have to know what they are.

In the Decision Quality work I've been involved with for the last several years, we've built math models of complex decision processes. There are always about five factors that account for 90% or more of the variability in the model.

Chasing this rabbit around the pole is a bit like searching for the magic levers. For all sorts of reasons people point here, no there, for the thing that will unlock the mess. Generally the pointing is towards someone else's larder. So one person thinks the answer is more power to the consumer, another more power to the entrepreneur, another more power to the capitalists, and another more power to the regulator.

If you get past the rhetoric, I believe we have socialized health care in this country, just like Canada, Sweden, and all the rest. It's just that our bureaucrats, at least the ones that matter, don't draw a paycheck from a taxing authority. But make no mistake, the reality on the ground is that it's a gigantic lumbering system that is just as opaque as the Kremlin, controlled by a small group of plutocrats and oligarchs, making decisions to benefit the collective, except the collective aren't the patients.

There are two aspects that are particularly troubling beyond all the obvious.

The first is that nature loves specialization and hates generalization. That's why there are no TigerCows or FishTrees. Man is a unique biological entity in that he's an omnivore (not a lot of those in nature) and proves incredibly adaptable. We're also highly evolved, have no natural predators, and are hugely destructive to our ecosystem. We are biological freaks. Big health care, like big banking and big business, has no concomitant in nature. And over a couple of business cycles, nearly every conglomerate gets broken up to "unlock" value.

The evil secret in health care is that specialization is proven to work in the small . . . there is a doctor for everything, but isn't allowed to work in the large . . . big money is spent every year to make sure that the plague of specialized hospitals doesn't stretch across the land, visiting the evils of lower prices, better outcomes, and lower complication and mortality rates on innocent patients.

The second relates to the first: Large, centrally planned economies don't work. See exhibit A: USSR. But that's what we've got in the US Health Care business. I know the people on this thread love to rail at the evils of more government involvement in the game, but I don't think it would make a bit of difference. Everything about healthcare is already like the USSR.

• Through licensing, doctors have an artificial monopoly on the supply of care. Don't kid yourself, the supply is hugely constrained.
• Through patents, the big drug companies have a monopoly on drugs.
• Through the normal machinations of big capital, big health care has a monopoly on where and how care is provided and paid for.

All of it is anti-competitive and anti-consumer in the extreme.

I actually do believe that government can, though won't, make a difference.

• Change patent laws: 17 years if plenty of protection; rethink licensing provisions.
• Get rid of the various laws tucked here and there than make it impossible for doctors to start and own specialized care facilities.
• Open up the market to doctors trained elsewhere.
• Make more funding available to bring down the cost of becoming a doctor (increase the supply of care providers; decrease the cost).
• Force 10x information transparency: if you want federal dollars, you need to make your care and outcome data available to the public.
• Get this out of the realm of "insurance" so that there aren't 50 regulators, each making deals to constrain the supply of "insurers."

The bad news is that none of this will happen. The good news is that apparently we're headed for a global food shortage. So my alternative strategy is a universal military draft up to the age of 60 to make sure we have our "fair share" of resources. We'll all be girded up for global war all the time, so we'll all get our health care from the military.

Blogged with the Flock Browser

Tags: Psycho-Cybernetics, Maxwell Maltz, Health Care Choice, Decision Making

FAA Plays Petualant Child

It took me and my wife 30 hours to fly from Indianapolis to Seattle. The combination of bad weather (typical for this time of year) and The absolutely bizarre decision on the part of the FAA to order the immediate grounding of all of American Airlines MD-80s over some wires, turned a trip that should have gone like this . . .

30 minute flight to Chicago

Four hour flight to Seattle

To this . . .

The flight to Chicago didn't leave until four hours later. (There were no gate agents. None. A wonderful supervisor named Deborah Williams helped us out.)

As a result, there was no flight to Seattle. Not that day. Not for three days. So we were booked on USAir to Charlotte to make a connection there to Seattle (non-stop)

Except the plane was late taking off While we were running up to the gate in Charlotte to make the connection, the door closed. They wouldn't re-open. There were no other direct flights to Seattle until Monday.

After much scrambling, the nice people at the services counter booked us on a Charlotte to Philadelphia, Philly to Seattle ticket the next afternoon.

The flight to Philly was on time. We had a scheduled 2.5 hour layover. The flight took off four hours late. We arrived home at 3 in the morning on Day 3.

I found out later that the Dalai Lama was speaking, which probably accounts for the mess getting to Seattle. The good news in all of this is that everyone we met along the way in the USAir system was just as helpful and pleasant as they could be. The better news is that I got to see my brother on his birthday. The universe works in mysterious ways.

From what I can tell, the airlines are well and truly screwed. Here's what Jeff Jarvis at Buzz Machine has to say . . .

If there ever was a tipping point for an industry, headed down, surely the airline industry has reached that unfortunate metaphor. They’re fucked and their passengers with them.

On NPR this morning, I heard an old lady in a wheelchair forced to come to the airport to change her canceled American tickets — she wasn’t allowed to do it online or on the phone, not even after she said she was disabled and her daughter had seven children and a newborn and couldn’t take her to the O’Hare’s hell.

She is Customer Omega, the last screwed consumer.

You simply can’t treat people this way and survive. We all hate the airlines. We hate the experience on the plane and in the airport. We should fear for our safety, given American’s shoddy (and, one wonders, fraudulent) maintenance work. (As the Times said this morning, at least the FAA is doing its job.) The airlines never see themselves as our advocates, friends, servers; no, they are our prison wardens and enemies as they fight down legislation that mandates they should give us the crudest amenities a prisoner would get: clean water, air, and a toilet. The economics of the industry as it is being run today are unsustainable. And apart from the all-business-class airlines I try to fly every time I can (Eos, Silverjet, and there are more coming), there is not one visible bit of innovation — not one attempt to get out of this mess — visible in the industry.

Lots of us blogged about the disaster that is the FAA. After years of coziness, neglect, and worse when it comes to regulation, the FAA has decided to show everyone that they really, really, really know how to smack people around.

Here's a little secret about inspecting an airplane: it only takes a few days to do it, and airlines routinely take planes out of service to check them without stranding hundreds of thousands of passengers or costing themselves tens of millions of dollars.

So why are both of those things happening in the current airlines' chaos? Did the friendly skies suddenly become too dangerous to fly? Not at all. The massive flight cancellations at American Airlines — about 1,200 flights, more than half of its daily schedule, affecting 273,000 passengers after the Federal Aviation Administration ordered the carrier to ground 300 planes for inspection — are the aviation equivalent of a traffic cop behind on his quota blanketing a street with tickets to avoid catching heat from his sergeant. Woe unto thee unlucky enough to double park.

The cop in this scenario is the Federal Aviation Administration (FAA). The agency responsible for policing the safety of the nation's airlines has been under intense pressure over the last few weeks, ever since an investigation by the House Transportation Committee revealed in March that an FAA supervisor allowed Southwest Airlines to fly 46 planes that had missed inspections. Congress has been holding hearings on aviation safety, during which Robert Sturgell, the FAA's acting administrator, who is up for the permanent position, has had to answer charges, from whistleblowers and lawmakers, of excessive coziness with and lax oversight of the nation's commercial carriers.

And so he did, by ordering American, the nation's largest carrier by revenue, to ground all of its MD-80s after finding that their wiring wasn't fastened precisely according to FAA rules. No one, including the FAA, is saying that any of these planes were unsafe to fly. But rather than allow American to ground a few planes at a time and phase in the fixes and re-inspections (as it had done just two weeks earlier), the FAA chose to ground all the planes at once. The agency has said that it's simply enforcing the rules, and American's CEO, Gerald Arpey, has been careful to avoid any criticism of the FAA. (A spokesman for the airline would only say that American would follow the rules "to every jot and fiddle.") Industry observers have not been so shy. "They were making a statement to the traveling public," says Rick Seaney, CEO of Farecompare.com, a travel website.

This is another example of the Bush Administration at it's finest: Playing the role of Petulant Child when someone calls it out for its very bad behavior--a depressingly regular and recurring phenomenon.

I have flown well over 1 million miles over the past decade. More than a lot of people, less than some. I used to look forward to a road trip. For the first time in my career I'm actively thinking about changing what I do for a living to get off the road. It's a bad experience not likely to get any better.

 

   

Blogged with the Flock Browser

Tags: airlines, FAA, Customer Omega, inspections, Robert Sturgell, delays,  

Stop the Madness: Drug Companies on the Verge of Ducking all Legal Liability

There is a very disturbing piece in the New York Times today which will go largely unnoticed.

For years, Johnson & Johnson obscured evidence that its popular Ortho Evra birth control patch delivered much more estrogen than standard birth control pills, potentially increasing the risk of blood clots and strokes, according to internal company documents.

But because the Food and Drug Administration approved the patch, the company is arguing in court that it cannot be sued by women who claim that they were injured by the product — even though its old label inaccurately described the amount of estrogen it released.

This legal argument is called pre-emption. After decades of being dismissed by courts, the tactic now appears to be on the verge of success, lawyers for plaintiffs and drug companies say.

The Bush administration has argued strongly in favor of the doctrine, which holds that the F.D.A. is the only agency with enough expertise to regulate drug makers and that its decisions should not be second-guessed by courts. The Supreme Court is to rule on a case next term that could make pre-emption a legal standard for drug cases. The court already ruled in February that many suits against the makers of medical devices like pacemakers are pre-empted.

More than 3,000 women and their families have sued Johnson & Johnson, asserting that users of the Ortho Evra patch suffered heart attacks, strokes and, in 40 cases, death. From 2002 to 2006, the food and drug agency received reports of at least 50 deaths associated with the drug.

In the small, this is a story about a very large company trying to duck yet another round of potentially very expensive litigation. In the large, this is one of many, many payoffs large businesses are reaping or attempting to reap at the hands of a judiciary, and particularly a Supreme Court, that is quite frankly bought and paid for. In fact, the US Chamber of Commerce makes no bones about it that they've spent huge dollars over the past 25 years working to help place pro Big Business jurists everywhere it counts and to mount and support litigation and legislation that bit by bit strips away any semblance of constraint or restraint on the big money players.

An obvious result of this in the large is the wholesale privatization of profits and socialization of costs that has gone on in both the financial services and health care businesses. At the risk of sounding like a left wing conspiracy theorist, none of this has happened casually or accidentally. The collective "we" have become intoxicated with the Chicago School of Economics version of economic reality, I fear to our collective long term detriment.

To the specifics of the doctrine of pre-emption, the idea is that if the federal regulator says it's okay, then it's okay beyond any other standard and any subsequent finding of fact or matter of law. It's the ultimate free pass.

As a purely hypothetical matter, the argument has its own logic. Hey, we adhered to the standard as we knew it at the time and the ultimate arbiter passed on it! It's like a commercial form of the Fifth Amendment prohibition of double jeopardy. Except in this case, the facts don't support the theory.

The FDA, like the FAA, EPA and many other federal agencies have become hollowed-out farces under the current administration. In the case of the first two, they are literally bought and paid for by the firms they are to regulate. They are underfunded, understaffed, and most importantly, rely on the firms they regulate to do their own inspection and reporting under the dubious "free market" mantra that they won't get whacked if they truthfully report on problems and failures.

This is the same line of thinking that has guided regulatory thinking regarding every important part of our economy as well as the miserably failed enterprise in Iraq: Markets know best; Capitalists by acting in their own best interests (and they certainly have done that) will act in our collective best interests; Large private enterprises are good, but large public enterprises are bad, filled with evil bureaucrats; If we just give individuals more information and control, they will organically rise up and force evil doers to their knees while simultaneously encouraging benevolent oligarchs to take heed. Worded differently and placed in a different context, these are appealing ideas. The way I've phrased them makes them sound, what, icky? That I'm uninformed?

The biggest problem with both financial services and health care is the complete and total lack of accountability in both schemes.

When I got my first mortgage in 1984, the process was a full financial proctology. Why? Well, one reason is that the lender was going to keep the loan on its books. By extending me capital, that means it couldn't offer it to someone else. Let's just stay with mortgages for a minute: Today, there are legions of players in the game, each taking a vig without taking risk, passing the mortgage on to the next player who then does the same. It's the biggest Ponzi scheme so far.

You say, "Ahhhhh, but look at what's happening in the financial markets today!  The system is working!" I say, is it? Yeah, all those evil borrowers who duped those well-meaning financial services firms are sure getting theirs now! The fact that they all filled out form 4506T that allowed the lender to verify income with the IRS and the lenders didn't is besides the point! There is egg on a lot of faces, but the game hasn't fundamentally changed. There is massive amounts of cash now sitting on the sidelines waiting for the next game of Three Card Monte to begin. We'll be back here in less than a decade.

The same goes on in health care. Drug companies are granted legal monopolies in the form of patents. They negotiate in secret with a very small number of players to lock in profits. Those players pass the goods deeper into the system, taking their vig and locking in their profits. And now the drug companies want legal immunity as well. In the case of J&J, internal documents show they knew they were lying. But why should that matter?

The defenders of markets and capitalism say that risk takers should be reward makers. That's the argument against letting big, bad government get into the game of allocating capital and picking winners and losers. They're not good at it. Why? Because governmental actors don't answer to the markets: they experience no risk/reward for making their calls.

But that's exactly the problem we have in Health Care today. It only looks like what market-defenders claim it is. And given its size, the big players will spend big money to ensure that the legally sanctioned and protected shell game will continue. And as is the case with personal finance, think about your retirement and home now, we health care consumers will be offered more and more choices over time, but most of us will fail at it. Why? Two reasons.

The first is that consumers are the only ones in the game actually taking risks. Should I get this policy or that one? Should I go to this doctor or that one/ Should I undertake this therapy or that one? These are big, big decisions. Just like the decision to invest in this fund vs. that fund. And if we guess wrong, we're roundly screwed. But the people providing the goods and services are not. In fact, with every passing year, they are more and more insulated from legal and market risk. Profits and privatized, while risk and costs are passed to someone else. If I use my "health insurance", my costs go up next year. If I don't, my costs go up next year. The providers make money regardless.

The second is that choice is an illusion. Capitalists aren't really. They're socialists with better benefits. When they screw up, they seek to buy their competition. When they really screw up, they go to the big bad government and look for help. They collude in formal and informal ways. They vertically integrate in the name of efficiency but how much of that do consumers really see?

I'm ranting, and probably not that well. It's just an infuriating situation without any real answers. Ayn Rand is probably laughing her ass off wherever it is that deceased objectivists hang out.

I am by nature an optimist: I come by my pessimism or cynicism synthetically. Somewhere along the way something happened to me that I am deeply suspicious of overdogs. I have spent a big portion of my life on the outside of, but working for large enterprises. In the small, I love them all. They're filled with people trying to do a good job and get by. But there's a massive "but" in here.

The "but" comes back to the disconnect between risk and reward. It's actually a bigger but than that, a bigger disconnect. It's that we don't exist to each other anymore.

Read a book or watch a documentary that features a white traveler wandering alone through some backward third world place. People with no means offer, no insist on, sharing what little they have, cooking meals and taking in strangers. It's how people react to people. We've lost that in the west in general and in the US in particular. Most doctors care about their patients. Some even know them. But it all goes haywire as it gets bigger and more efficient.

I'm going to stop now. I'm exhausted. If you've read this far, you must be as well.

Blogged with the Flock Browser

Tags: Pre-Emption, FDA, FAA, Johnson and Johnson, Supreme Court, US Chamber of Commerce, Ayn Rand, Objectivism

The idiots are truly running the asylum. A 22 year old massuese won a $300 million contract to provide ammunition to Afghan and you and I are paying for it.

What is it about the current administration and contractors? War profiteering is as old as war and a fine American tradition. After all, if we're going to send our boys to the slaughter, someone should make money from it, right? But this one just doesn't make sense at all. In a very lengthy and detailed piece in the New York Times, we learn that tax payers are shelling out $300 million dollars to a, and this is a gross understatement, "shady" arms dealer who is 22 years old. And no surprise, they're buying and shipping absolute crap which they're buying illegally from even shadier sources.

Since 2006, when the insurgency in Afghanistan sharply intensified, the Afghan government has been dependent on American logistics and military support in the war against Al Qaeda and the Taliban.

But to arm the Afghan forces that it hopes will lead this fight, the American military has relied since early last year on a fledgling company led by a 22-year-old man whose vice president was a licensed masseur.

With the award last January of a federal contract worth as much as nearly $300 million, the company, AEY Inc., which operates out of an unmarked office in Miami Beach, became the main supplier of munitions to Afghanistan’s army and police forces.

Since then, the company has provided ammunition that is more than 40 years old and in decomposing packaging, according to an examination of the munitions by The New York Times and interviews with American and Afghan officials. Much of the ammunition comes from the aging stockpiles of the old Communist bloc, including stockpiles that the State Department and NATO have determined to be unreliable and obsolete, and have spent millions of dollars to have destroyed.

In purchasing munitions, the contractor has also worked with middlemen and a shell company on a federal list of entities suspected of illegal arms trafficking.

Moreover, tens of millions of the rifle and machine-gun cartridges were manufactured in China, making their procurement a possible violation of American law. The company’s president, Efraim E. Diveroli, was also secretly recorded in a conversation that suggested corruption in his company’s purchase of more than 100 million aging rounds in Albania, according to audio files of the conversation.

My first reaction to this was to just shake my head. Which really pisses me off. This is outrageous and most likely criminal. Given the depth of reporting here, I'm going to make the leap that the facts are mostly right and that the situation is mostly what's being described. Shades of Abu Ghraib. Shades of Walter Reed. Shades of . . . There has just been so much of this sort of thing that I and we just become immune to it. Oh well. Stuff happens. Why are you so surprised? You didn't think that whole MBA President thing meant anything different in Washington than it does on Wall Street?

So there will be an investigation. The clowns with the $300 million contract will be "suspended." Maybe someone will get prosecuted. The money is gone. People who don't bank down at the corner will pocket obscene profits. A new contract will now be awarded to one of Dick Cheney's buddies. The cycle will continue. Grotesque.

Blogged with the Flock Browser

Tags: AbuGhraib, Walter Reed, Worst Presdient, Afghan Ammunition, Efraim Diveroli, $300 million

Why is it that given an ethical choice, the leaders of the right always picks wrong?

I suppose there is an argument that, "All is fair in love, war, and politics." And the following hardly arises to the level of voter suppression, the Swift Boat attacks, and just plain stealing elections. So surely it's no big deal to cross party lines and vote in the other guy's primary . . .

For a party that loves to hate the Clintons, Republican voters have cast an awful lot of ballots lately for Senator Hillary Rodham Clinton.

About 100,000 GOP loyalists voted for her in Ohio, 119,000 in Texas, and about 38,000 in Mississippi, exit polls show.

Since Sen. John McCain effectively sewed up the GOP nomination last month, Republicans have begun participating in Democratic primaries specifically to vote for Clinton, a tactic that some voters and local Republican activists think will help their party in November. Spurred by conservative talk radio, GOP voters who say they would never back Clinton in a general election are voting for her now for strategic reasons: Some want to prolong her bitter nomination battle with Barack Obama, others believe she would be easier to beat than Obama in the fall, or they simply want to register objections to Obama.

Well folks, I've got news for you. This doesn't pass the ethical sniff test. The purpose of a primary is to help a party to pick the candidate it wants to run. It's not a general election. If you're not registered in the party, you have no business voting in the primary. Once again, the leaders on the right are making a welcome tent for the ethically challenged.

Blogged with the Flock Browser

Tags: GOP, Rush Limbaugh, Ethics, Liar, Cheat, Ethically Challenged, Decision Making, Clinton, Obama

Good news, you and I just made a $200 billion dollar loan to Wall Street

Just in case you had any doubt that the government "of the people, by the people, and for the people" isn't any of those things . . .

The various investment banks who recognize a gift horse when they see one have showed up at the Fed discount window with $200 billion in securities that the market won't value. This in response to the Fed's multi-pronged strategy for averting a financial meltdown that included slapping around Bear Stearn's shareholders.

For those following along at home, here's what that actually means. The securities in question? The ones being used as collateral against loans from the taxpayers at crazy-low rates?  There are currently no buyers at virtually any price for these very same "securities," and certainly not at a price that the various security holders want to recognize.

The Investment Banks are offering these as collateral for loans from the tax payers. That means you and I are making loans to the very same investment banks who caused this mess so they don't have to wash their own laundry. I can't think of an analog here in the real world for what's going on here. It would be like me offering the contents of my storage facility, all that crap I'm too lazy to get rid of, as collateral for a loan except you don't get to look inside the storage facility I'm just telling you what's in there is worth $100,000. And I want the loan at the same rate that gold plated borrowers with gold plated collateral get. It gets better than that.  Oh, I also want more than $100,000 . . . more than the value of my collateral which you don't get to see and for which there is no known value.

Just idle curiosity. If the Fed is willing to take $200 billion in mortgage backed securities as collateral to rescue the bad boys of Wall Street, why not $200 billion in actual mortgages, or $200 billion in actual houses to rescue the borrowers? I'm betting that would solve a whole lot of problems for a whole lot of people. But that's not going to happen here.

Blogged with the Flock Browser

Tags: Fed, Bear Stearns, Wall Street, crooks, liars, cheats, mortgage backed securities

The Guns of March. This is Not the War We Were Promised

Most of the people I talk to on a regular basis have become completely desensitized to the five-year war in Iraq. It's like if we ignore it, if we don't read about it, maybe it will just go away.

Bush, Cheney, and McCain are busy tub thumping about how and why continuing to spend money and treasure in Iraq is important. One thing that is a fact is that this is not the war we were promised. That's a weird statement to make. War never works out the way the planners plan. It's reminiscent of what many were saying in the early days of August 1914, "We'll be home for Christmas."

Almost 4,000 U.S. military members have died, and more than 29,000 have been wounded. The cost is $500 billion and counting.

Nobel Prize-winning economist Joseph E. Stiglitz and Harvard University public finance expert Linda Bilmes have estimated the eventual cost of the war could be as much as $3 trillion when all the expenses are calculated.

"This isn't the war we signed up for," said Jon Alterman, head of the Middle East program at the Center for Strategic and International Studies in Washington. Back in 2003, he said, Americans expected a quick, decisive defeat of Saddam and no lingering presence.

Blogged with the Flock Browser

Tags: Gunsof August, Iraq, War, Bush, Cheney, McCain, Joseph Stiglitz, Linda Blimes, Jon Alterman, Center for Stategic and International Studies

Lessons from Bear Stearns; How Quickly Laissez-faire true believers fold up their principles

As the events surrounding the demise of Bear Stearns continue to unfold, new and perhaps more interesting sub-texts are also clawing their way to the surface. For the true believers in laissez-faire economic policies, the latest moves by the Bushies has to go down like ground glass. After years of loosening the yoke of government regulation, supervision, and enforcement, and I use the word "yoke" equally loosely, and a similar time spent tightening the choke on ordinary citizens (I'm thinking about the Bankruptcy act of 2005), the Lord's of laissez-faire have chucked the rule book to bail out the titans of risk capital. You can be sure the same kindness and courtesy will not be extended to the other 300 million of us . . .

President Bush on Monday welcomed the Federal Reserve’s sweeping intervention in the nation’s financial markets as his administration faced accusations that it had supported the bailout of a prestigious investment bank while doing little to address the hardships of Americans facing foreclosures on their homes.

Meeting with his economic aides at the White House in the morning in the first of two meetings on the economy, Mr. Bush again sought to project optimism at a time of financial turbulence after the Fed’s brokering of the takeover of Bear Stearns by JPMorgan Chase.

In the midst of the mess, President Bush found another bizarre and backhanded way to draw attention to his utter cluelessness, or is it fecklessness . . .

Mr. Bush singled out Treasury Secretary Henry M. Paulson Jr. for praise, saying he had shown “the country and the world that the United States is on top of the situation,” an assertion that was broadly disputed by the president’s critics.

“I want to thank you, Mr. Secretary, for working over the weekend,” Mr. Bush said in brief remarks in the Roosevelt Room.

Um, err, wow. Yeah, imagine that. Working on a weekend. What's next, staying up past 9:00 p.m.? Oh wait, they did that too? Gee, I can't imagine why you would do such a thing.

Deficit hawks have long rung their hands over the impropriety of running up gigantic negative balances, forgetting or ignoring that for the folks holding the wheel, that's the whole point. It's called "starve the beast," the idea being that you hamstring the government with so much debt that future (liberal) lawmakers won't even be tempted to launch a new social program. People actually believe and practice this non-sense.

Now those same people are perfectly willing to open the floodgates even more, and they will print money to do this, to do what they deride: create a new social program, this time, to bail out the dopes at the top.

In blathering on like this, it's not like I have an alternative strategy. The geniuses who sit in the big chairs have to yank the wheel in another direction or the rest of us will feel even more pain than we already are and otherwise will. The annoying part in all this is how quickly principles crumble, and how quickly they will be restored once this latest unpleasantness passes and the silk-sock set can get back to playing Texas Hold-em with the global financial system.

   

Blogged with the Flock Browser

Tags: BearStearns, JPMorgan, laissez-faire, George Bush, Bankruptcy Act 2005, Henry Paulson, Worst President, Decision Making, Bushies, Feckless, Clueless