Archive for February 2011


February 28, 2011

Here’s one way to do it.  You own a small business which in turns owns a building you partially use.  You go to the bank for a loan and bank says you are already over extended with your building mortgage payments.  What do you do?

You say no problem.  You sell off the building, pay off the mortgage and ask for the loan again.

What you do not tell the bank is that you have signed a 20 year lease with the person to whom you have sold the building.  In all likelihood you have incurred the same amount (or more) liability leasing as when you owned.  In fact accounting rules require businesses to “capitalize” leases which have long term obligations.

So what’s this about?

Big banks like Bank of America, JP Morgan Chase, and Citibank would never let someone get away with a slight of hand like this.  Yet when it comes to their own books, they have been quite creative and equally as misleading.

The game big banks play is to “net” their assets.  Let’s say BoA has a trillion dollars in assets surrounding collateralized debt obligations (like with subprime mortgages).  They decide that if they could lover this amount, they could lend more and therefore make more earnings.  No one seems ready to buy these CDOs.

How to do this?

Magic.  Let’s buy some credit default swaps which insure against these CDO’s defaulting.  BoA will pay the CDS issuer some amount of money each year in return for the CDS issuer agreeing to make BoA whole in case the CDO defaults.  In the minds of the big banks, they have reduced the liability of these CDOs to practically zero and therefore they record zero on their liabilities side of the balance sheet.

In a perfect world, this practice might make prudent sense.  In our actual world, CDOs are of unknown value and the ability of CDS issuers to pay up is very questionable.  The practice of using CDS is not risk free.

So as a user of one of these banks, you should know just how much they are exposed to the unknown.  Today you can’t, but hopefully tomorrow government pressure will force banks to reveal all their assets and liabilities and not allow the practice of netting.


Right to Work Compromise?

February 27, 2011

It is not clear at all whether a compromise in the standoff with Governor Scott Walker is possible.  It could be his way or the highway.  But consider this…

Collective bargaining is a bed rock principle with American labor.  With a rich history of weak kneed or unabashedly opportunistic State political leaders, unionized State workers should make everyone take notice.  Unless performed well, public sector unions represent an outright license to take advantage of tax payers.

On top of the bargaining process, unions have insisted upon “closed shops”.  This requires any State worker covered by a union agreement to be a “dues paying” member.  No dues, no work.

As a consequence, State workers’ unions have large sums of money with which to back politicians or influence the public through advertisements.  Teachers’ unions have been very effective at expanding their influence.  But now the pendulum is poised to retreat in a less generous direction.

At the bottom of the forces driving this reversal is the resistance of citizens to pay higher taxes.  It is not that they would not pay more in taxes if they thought it was necessary and fair, but they do not.  The average voter feels the tax burden is falling disproportionately upon their shoulders.

While there are many reasons for this, one important factor has been the stagnation of middle class wages and salaries over the past 25 years.  During this same period, globalization has blossomed and thousands of American jobs have disappear.  In their place are goods and services imported from countries in Southeast Asia.  The middle class now sees the rich getting richer and themselves getting squeezed.

Enter public sector service jobs.  All of a sudden, their wages, salaries, and benefits look very attractive.  No good politician has ever lost the opportunity to pick on some group if the politician thought he could divert the public’s attention.  An enemy exposed is time bought.

There are arguments to be made that public service workers should pay more for their health care or retirement funds.  They should at least be on a par with similar private sector employees.  And the notion of closed shops and automatic dues deductions seems a bit outdated.  There certainly seems room for movement without unilaterally repealing workers rights to organize.

There are two questions.

  • Will the unions and the State governors be willing to compromise?
  • Why does anyone think that when the State workers’ beast is slain, life will be any better for the middle class?

The real issue facing all State workers and taxpayers is how can we begin to grow in the general economy, and raise all boats (public and private sector).


What’s Missing?

February 26, 2011

Politics and life in general are missing something today.  It certainly is not rage.  We have all too much of that.  It certainly is not tragedy.  We have too much of that too.  It is not the unexplained either.  That happens all the time.

Is it the sense of helplessness?  Is it a paucity of hope?  Is it the lost American dream?

It could be a lack of perspective.  (If it is an American it cannot be credible.)  It also could be a limited view of history and the lessons readily available from the past.  It could be naivety or plain laziness.  Critical thinking seems a good candidate too.

Maybe there is a lot of rage or tragedy or the unexplained today.  And maybe there is an abundance of helplessness and hopelessness.  And maybe the American dream, as we remember it, has drifted away.

All of this might be limiting our sense of perspective.  It could be dimming our view of history and the lessons from it.  And critical thinking may have been crowded out by the immediateness of social media.

But while these are important, they are not what is missing.

It is fairness, openness, and the sense of practicality.

Consider the debate over health care.  How can it be ok for some to receive a high level of coverage (like Federal employees) and others to receive none or worse be denied insurance coverage which makes health care prohibitively expensive and practically unavailable?   How can it be that health care insurance costs are increasing each year and no clear explanation is given?  How can the national health care debate continue to say the US has the best health care in the world when outcome data shows otherwise, annual premiums are hurting the competitiveness of businesses, and not all Americans are included?

Or, the Wisconsin debate over the collective bargaining rights of public sector employees.  How can the State think they can simply take away the negotiated benfits, without negotiations?  How can the State say it is about balancing the State budget and attempt to eliminate collective bargaining, especially when the worker’s union has agreed to concessions?  Why can’t all Americans see that if it can happen there, it can happen next to them.  After State workers, it could be private sector employees until everyone in the bottom 98% of earners are earning a lot less.  Why can’t people see this?

The answer is not to continue as we are.  And the answer is not to simply take from some.  There must be some across the board belt tightening for sure.  And, in the sense of fairness, openness, and practicality, there must be a sharing of both the cuts and any tax increases.

Steady stable growth is the best long term answer.  The greater wealth that this creates must be shared and invested wisely.  If not, we can expect to cycle wildly through period of feast or famine.  Fairness, openness, and a sense of practicality will do us all well.

Greed and “me first” lurk behind every bush and tree ready to bring us back to where we are today.


DOMA Red Meat

February 25, 2011

Tony Perkins of the Family Research Council, has spoken.  He has called for the GOP to nominate someone in 2012 who will put as a top priority the enforcement of DOMA.  Perkins joins a long list of terribly confused people who think that marriages are sacred, are the best and only example of how to raise a family, and when pushed, they really feel that same sex life styles are an abomination.

Catholic Bishop Tommy Tobin (of Providence, Rhode Island) said he would redouble his efforts to defeat a pending Rhode Island bill that would legalize same sex marriage.  Bishop Tobin is no stranger to these human rights issues and consistently picks the side that excludes individual human rights such as in women’s rights and gay rights.

One must search high and low for why people like these two take such positions.  There is no evidence that committed same sex couples are less stable than the 50% divorce rate of man/woman couples.  There is no evidence that same sex couples’ home environment is less nurturing than heterosexual ones.  So why are Perkins and Tobin so vehement?

Blind prejudice could explain it.  But I would look more to economics.

Perkins tells people how good and important heterosexual family formation and life style is.  For that, people send him and his foundation money.  Oh, yes they send money.  Bishop Tobin is busy closing churches in the inner cities (where poor people with little or no money live) and opening new ones in the suburbs (where richer people with money live).

The bigger question I have is why would the GOP give any attention to these two special interests?  The GOP must be, by now, seeing the coming wave.  The younger generation has seen gays up close and believes these are ordinary people who simply have a different sexual orientation.  They have not acquired this preference, they were born with it.  They are not lesser people, they are just different, like left handers and right handers.

At the end of the day, a spirited pro-DOMA Presidential campaign could not be better news for Democrats.


DOMA – The End?

February 24, 2011

Big news today, well, at least fighting for front page space with the turmoil in Libya and the standoff with Governor Scott Walker in Wisconsin, was the Justice Department’s announcement that it would no longer “defend” the Defensive of Marriage Act.  I wonder why?

Could it be that marriage is no longer considered “sacred” and religions could deny civil rights to ordinary people?  Or that marriage was not ordained by god as a union between one man and one woman implying that god did not like those people who lived with others of their same sex?  Or that same sex couples were less fit to raise children than “normal families” that engaged in incest or were in fact one parent plus uncle so and so?

The most straight forward explanation is that the DOMA does not fit with any modern view of individual civil (or human) rights.  On what basis can some couples receive government benefits and secure rights of inheritance and others not?  One can certainly question all the rights and procedures we currently attach to marriage.  If one feels they should not apply and can present a convincing argument, this argument should apply to all couples according our Constitution.  That is the rational.

Unless Congress follows up and changes the law, you can be sure that when social conservatives regain the White House, enforcement of the DOMA will resume.  The only real way to end this problem is to take government out of the equation.  Rules surrounding two people living together along with any special privileges that logically should accompany is the proper role of government (most likely State government).  Logically this is about civil unions.

Marriage, especially the sacred type (that are experiencing a 50% divorce rate), can be handed out by private organizations such as churches.  These marriage, however, should carry no weight in State or Federal law without an accompanying civil union.

There, the problem is fixed.

Does Majority Rule?

February 23, 2011

Most of us have been brought up to understand that if a majority votes for something, that’s the way it will be.  So what’s the big deal in Wisconsin.  Republicans won the election and now have a majority.  Why can’t they repeal collective bargaining for State workers?

Well, there are two views on this subject.  First by Wisconsin law, the legislature certainly can repeal the collective bargaining laws.  That is straight forward.

But there is an unwritten commonsense law which Republicans, especially Governor Scott Walker is not considering.  Commonsense tells you that you have picked a poor option when there exists a large, enthusiastically opposed faction.

The US Constitution requires a 2/3rds majority to overcome a veto or to pass a Treaty or Constitutional amendment.   This is a direct reference to respecting the wishes of a strong minority.

Commonsense should also inform Republicans that even if they win this battle, they are setting themselves up for a greater defeat.  Americans understand compromise but they do not like bullies.  The Wisconsin public workers have agreed to the demanded pay and benefit reductions.  The public thinks that is enough.  The Governor does not.  All or nothing is a dangerous political game.

There is a bigger reason Republicans should reconsider their current strategy.  Further tax cuts can only be funded by going back to these same State employees and taking more from them.  This has not been lost on Fire and Police employees who were cleverly exempted in this go around.  They are next, they realize.

We cannot live by mob rule either.  The demonstrations taking place in Wisconsin, however, are broad based.  Elected officials would be well advised to consider where the finish line really is.  A win on this collective bargaining issue may be in reality a much bigger loss in the future.



February 22, 2011

There is an ethics debate underway.  It may not be phrased that way.  It is more often referred to as an “affordability” issue.  Of course, I am referring to health care and its availability to all Americans.

The affordability side points out that good health care is costly.  They claim that making it available to everyone will mean everyone will have to wait for service.  Some claim “death boards” will decide whether grandma will even get treatment.  And the most honest, if still ethically challenged, will say if people do not pay for health care, they will abuse it.

Like so many of the other political debates, there is truth in much of what is said.  If nothing changes, and you give “free” health care (as we know it today) to everyone, it will be over used.

But why must patients only see doctors?  Why can’t doctors use hand held imaging devices during routine physicals?  Why must doctors feel compelled to order dozens of diagnostic tests when they are not necessarily required?

First, we must recognize that health care under any system is not free.  There are doctors and nurses to pay.  There are hospitals to staff.  And there are drugs and medical supplies that must be purchased.  The question is how much should an individual pay, and in what form should that payment be made.

For example, there are co-pays and the remainder is paid by insurance.  There could be co-pays and the rest paid by the government which in turn raises this money through taxes.  In cases of extreme poverty, the government (read tax payers) could pay for those without means but everyone else would pay.

Second, under any system of distributing health care, instantaneously there will be shortages and some method of allocation (and scheduling) is necessary.  Probably the least cost effective is the one we employ now.  Have enough medical services available to satisfy those who can pay and let costs rise through inefficiencies and fraud.

Getting agreement on this subject is very difficult when those who enjoy great coverage believe they will have to give up this coverage if health care is extended to all.  A clue might come from the German system.

In the German system, everyone is expected to pay into a plan.  Everyone is extended cost effective treatment.  No one is denied coverage.  There is a national plan that supplements citizens contributions from taxes.

In addition, there is “private” insurance.  This layer on top of the national plan allows those who can afford to pay to receive the boutique service (seeing Herr Doctor Professor, or access to a hospital bed in a higher rated hospital).  Pay more, get more.

What keeps this from being outrageously unethical is that the entry level of health care is more than satisfactory.  Germany has one of the best systems in the world.

There are very reasonable paths forward for the US.  They will, however, require changes to our current systems, and the expectations of doctors, hospitals and suppliers.



Customer, Service, and Care

February 21, 2011

Universal health care may not be the slam dunk answer to our current health care problems.  If you have great insurance coverage today, you probably do not see any problems anyways.  But with the US system the costliest in the world, not covering everyone, and with health outcomes below almost all other modern countries, I would still say there is a problem.  But here is a counter argument.

A friend of mine who was quite familiar with the Canadian universal system offered this insight.  He said many working in the Canadian health care system do not look at the patient as a “customer”.  He said that leads to poor bed side manner and a rather aloof attitude about any urgency the patient might have.  He also pointed out that care is not always available when the “customer” might want (or expect) it.  For example, one might have to wait weeks before space was available for chemotherapy treatment.  And, he said, on top of that the canadian system is going broke too.

My friend went on that there are too few doctors in Canada.  He reasoned that since doctors earn far less than their US counterparts, there were simply fewer people willing to practice medicine.  All this lies ahead of any American shift to universal care.

These are certainly outcomes I would not be clamoring for.  Never the less, I keep coming back to the actual situation in the US today.  We ration our health care resources on the basis of ability to pay, plain and simple.  Our system is biased towards emergency treatment as opposed to preventive health measures.  There are far more specialists to try and fix what has gone wrong than general practitioners trying to keep their patients healthy.  Emergency rooms are favored over health clinics.  MD rule the way over nurse practitioners.

I still can not understand the personal ethics behind a health care delivery system that denies coverage to some, charges exorbitant rates to others due to a pre-existing condition, and allows so many children to be without coverage.   There must be a better way.

In the end, everyone is going to die.  Our genes play a big role in when that time might be.  Personal choices, however, often play a bigger role.   Health care, therefore, must be about enabling each person a chance to achieve the optimum “quality of life” the particular individual has a right to expect.  This is a complex subject with many deep ethical questions I am not qualified to comment upon.  Never the less, without basic health care access, some people are screwed from the start.


Rape or Negotiations?

February 20, 2011

Wisconsin has captured the eyes of the nation.  It might have preferred that its cheese or Green Bay Packers have been responsible.  That was not the case and now Wisconsin finds itself between a rock and a hard place.

In the last election, Republicans swept to power in what is usually thought of as a very liberal State.  The circumstances seem familiar enough.  An unbalanced State budget and the prospect of needing to raise taxes convinced voters to drink the Republican and Tea Party potion.  Now the first signs of what their vote will bring is becoming clearer.

The question is whether it is rape or negotiations?

Governor Scott Walker has called for repeal of public sector workers right to bargain.  He has also said these workers must accept deep cuts in pay and benefits.  His justification, he claims, is the urgent budget shortfall and the unwillingness of public sector unions to bargain.  Walker also claims that State workers are overpaid compared to private sector workers.

Unionized public sector workers does not sound like a good idea to me in the first place.  Elected officials usually display the backbone of a worm, so I do not see how negotiations can be productive for both voters and workers.  But Wisconsin government workers wanted representation and the legislature agreed in the past.  So, union representation should not be the issue here.

The problem is an unbalanced budget.

Voters can agree to pay more in taxes.  They can also consider a reduction in services and general spending.  And most certainly, State workers can reconsider their current pay and benefits and decide to receive less.  (At some point in pay reduction, voters will begin to receive less in services anyways.)

The thrust to repeal the collective bargaining right is very dangerous.  This is an unveiled attack on unions and reveals the same type of labor busting attitude found in many private sector companies.  Workers, for sure, should have the right to not be unionized (just as in private industry) but having the heavy hand of government take it away from them just smells.

Wisconsin is truly a wake up call for all other State workers.  It should be a wake up call for everyone (voters and workers).  Balancing the budget by taking the necessary money only from the backs of workers does not promise a bright future.  What makes anyone think that there will not be a deficit next year and the year after?  Where will the money to balance those deficits come from?

Who will trust the government to serve all the people?



February 18, 2011

The huffers and puffers are taking center stage in Washington.  There, they proclaim their views on rescuing the Country from the deficit.  Some look to discretionary spending for their headlines.  Others zero in on Social Security and Medicare/Medicaid.  In separation, they all look silly.  In combination, there appears to be the basis for a serious discussion.

For example, why does the country need a second F-35 engine when the Defense Department says we do not?  Or, with life expectancy far above the the 66 years that existed when Social Security was introduced in 1936, raising the eligibility age seems reasonable.

Medicare and Medicaid, however, need a closer look.  We need to agree on what America is about.  Do we believe that when Americans become older and more vulnerable, they should be at risk of medical bankruptcy?  Do we believe that the needy, and especially the children of the needy should be somehow excluded from health care coverage or provided some sub-standard product?

How is it just that Congress members and Federal workers should receive tax payer paid, first class coverage and older and poorer Americans should get less?

The path forward with Medicare and Medicaid leads ultimately to a complete revamping of the overall US health care delivery system.  The current system is out of control on cost and only average in quality when compared all other modern industrialized countries.  Such an undertaking is not in the cards for this Congress.

Rather, we will hear pontifications around means testing, lower benefits, and fraud elimination.  All of which might be worthy “if” and “only if” Congressional and Federal worker benefits were in the same basket.

Maybe pigs will fly.