Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Month: July 2009 Page 3 of 5

Bottom Line On the Financial Sector: fewer bigger companies and a repeat of the financial crisis

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On July 22, 2009

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I think the obvious needs to be pointed out: after this crisis is over, there will be fewer large financial firms who control a larger percentage of the business. There will be less large (and small) banks and less brokers. The market will be closer to an oligopoly, and those involved in it, even if they don’t formally collude, will take advantage of their market power to increase their profits. It’s already happening, as (amusingly) BlackRock founder Fink pointed out:

Larry Fink, BlackRock’s founder and chief executive, on Tuesday took aim at the “luxurious” trading profits enjoyed by Wall Street banks, saying that they have taken advantage of reduced competition to charge their customers more for even basic trades.

“There are fewer players. There is very little capital being committed by these dealers,” Mr Fink said.

“They’re just taking the spread between the bid and the ask [the price gap between buyers and sellers] and they are making very luxurious returns,” he added.

It is hard to feel Blackrock’s pain, of course, but increased bid/ask spreads and increased fees aren’t in the interest of market liquidity or efficiency.  It is, in the purest sense, rent-taking (getting money for your position in a system, rather than for making the system better).

It is basic economic theory that the fewer actors in a sector of a private market (I won’t call it a free market, it isn’t) the worse for customers an the more the actors will be able to squeeze out oligopoly profits simply because of their position.

This is also something that every Congressperson and pundit who ever squeals about “competition” should find ominous—fewer and fewer firms competing in what is America’s most important sector.  (It must be America’s most important sector because America has spent going on 14 trillion defending it.)

Add to this that the appetite for risky credit default swaps has recovered and there is no move to ban or significantly regulate them; that firms like Goldman Sachs are back to their old ways; and that the ratings agencies have escaped any significant overhaul and it becomes a virtual certainty that the financial disaster we are going through was only the first.  The system is now more concentrated and more unstable than it was before.  The market actors are even larger than they were before: even more “too big to fail”.

When the horse bolts the barn and you refuse to even close the door after you’ve put it back in the barn, it becomes clear that you have no intention to stop it from happening again.  That’s what Washington’s actions tell us.  They truly believe this was a one off affair, that no one could have anticipated (because Summers and Geithner sure didn’t anticipate it, and they are sure they are the smartest people around) so therefore there’s no need to make real systematic changes.  All that is required are some minor regulatory changes and to give primary responsibility to the Federal Reserve, they not only failed to stop the last disaster but enabled it to occur and since of all regulatory agencies they are the most removed from Congressional control.

Welcome to your future.  It is going to look a lot like the present and the recent past.

Insurers engaged in systematic price fixing

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On July 22, 2009

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This is a story I had missed.  It seems that insurance companies determined rates for “out of network” medical services by looking at an independent database run by a company called Ingenix, United Health Group.

But the way the database “independently” determined the going rate was by having insurance companies enter data on how much the rate was for given services.  And for a decade they systematically entered prices which were lower than the actual prices being charged by doctors.

The result was that patients would get a larger bill than expected, the insurance companies would redeem the doctors for less than expected, and often the gap would never be made up.  A win for insurance companies, a loss for patients and doctors.

Companies involved, include (but I’m not sure if are limited to):

United, WellPoint, Aetna, Cigna, GHI/HIP, Capital District Physicians’ Health Plan, Independent Health, Excellus, MVP Health Care, HealthNow and Guardian Life Insurance Co

They have all “settled” with NY Attorney General Andrew Cuomo’s office and promised to use a new, more transparent database as soon as one is available.  They have given 100 million to make the new database.  And, of course, none have admitted they did anything wrong.

Bottom line on this is that the amount of money they saved (ripped off) is almost certainly more than their “settlements”.  So the entire scheme has been worth it, especially since no one went to jail.  Just another cost of doing business.

This is how large american corporations operate.  Law breaking and immoral behaviour is simply a cost-benefit matter.  If the money saved by doing something illegal is more than the cost of doing something illegal (including legal costs), too many of them will do it.

I would suggest that the only things which would really get executives to stop doing these sorts of things are to either treat them as criminal matters (and send CEOs to jail) or to treat them as what they are: clear collusive action to use an oligopoly position to control prices, and break them up.  But the second is no longer possible after the Supreme Court ruled that actions which suggest collusion cannot be taken as evidence of collusion, overturning prior precdent.

And, of course, senior executives rarely go to jail for screwing ordinary people, let alone committing massive fraud (or half Wall Street would be heading for the hoosegow) so real criminal charges certainly won’t happen.

I wonder what other scams the insurance companies are running we don’t know about?  What other ways they are fixing the books?  Only a fool would bet they aren’t.

Insurers engaged in systematic price fixing

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On July 22, 2009

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This is a story I had missed.  It seems that insurance companies determined rates for “out of network” medical services by looking at an independent database run by a company called Ingenix, United Health Group.

But the way the database “independently” determined the going rate was by having insurance companies enter data on how much the rate was for given services.  And for a decade they systematically entered prices which were lower than the actual prices being charged by doctors.

The result was that patients would get a larger bill than expected, the insurance companies would redeem the doctors for less than expected, and often the gap would never be made up.  A win for insurance companies, a loss for patients and doctors.

Companies involved, include (but I’m not sure if are limited to):

United, WellPoint, Aetna, Cigna, GHI/HIP, Capital District Physicians’ Health Plan, Independent Health, Excellus, MVP Health Care, HealthNow and Guardian Life Insurance Co

They have all “settled” with NY Attorney General Andrew Cuomo’s office and promised to use a new, more transparent database as soon as one is available.  They have given 100 million to make the new database.  And, of course, none have admitted they did anything wrong.

Bottom line on this is that the amount of money they saved (ripped off) is almost certainly more than their “settlements”.  So the entire scheme has been worth it, especially since no one went to jail.  Just another cost of doing business.

This is how large american corporations operate.  Law breaking and immoral behaviour is simply a cost-benefit matter.  If the money saved by doing something illegal is more than the cost of doing something illegal (including legal costs), too many of them will do it.

I would suggest that the only things which would really get executives to stop doing these sorts of things are to either treat them as criminal matters (and send CEOs to jail) or to treat them as what they are: clear collusive action to use an oligopoly position to control prices, and break them up.  But the second is no longer possible after the Supreme Court ruled that actions which suggest collusion cannot be taken as evidence of collusion, overturning prior precdent.

And, of course, senior executives rarely go to jail for screwing ordinary people, let alone committing massive fraud (or half Wall Street would be heading for the hoosegow) so real criminal charges certainly won’t happen.

I wonder what other scams the insurance companies are running we don’t know about?  What other ways they are fixing the books?  Only a fool would bet they aren’t.

Goldman Sachs Nominee Bob Hormats Helped Fund Sudan Genocide

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On July 22, 2009

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Yesterday I satirically noted that what Washington really needs is another Goldman executive in a position of power.  But today I read that Bob Hormats, a Goldman vice chairman, was involved in an IPO for PetroChina, which has Sudanese holdings.  He claimed, at the time, that none of the money would be used to work in Sudan (do people not understand that money is fungible and scarce?  The claim is absurd on the face.  Even if PetroChina used none of that money for work in Sudan, it would free up other money to be used in Sudan).

However, even if you ignore how money works, it turns out Hormats lied:

  • These statements later proved to be inaccurate and misleading. Several large institutional investors, including Harvard, have since divested from PetroChina, citing human rights concerns.
  • The SEC later cited Hormats’s remarks as evidence of illegal market tampering, or “market conditioning,” in a larger case against Goldman Sachs, which the bank settled for $2 million.

I hate to be a stickler, but this is a bit more serious than just being a Goldman boy.  Lying to help fund genocide may be business as usual for some folks, but I’d like to think it still disqualifies someone to serve in the Obama administration.  Since I’m guessing the Obama administration doesn’t agree (pretty sloppy due diligence if they didn’t know) I hope the Senate does and refuses to confirm Hormats.

(And if Hormats wishes to claim “I didn’t know”, then I’m willing to take him at face.  In which case, he’s not a liar, he’s a fool with bad judgment, and still doesn’t deserve to be confirmed.)

State Revenues Took Biggest Hit On Record During First Quarter

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On July 21, 2009

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Some devastating analysis from the Rockefeller institute (pdf) shows how bad the situation of many  states is:

State tax collections for the firstquarter of 2009 showed a drop of 11.7 percent, the sharpest decline in the 46 years for which quarterly data are available. Combining the Census Bureau’s quarterly data with its annual statistical series, which extends back to 1952, the most recent decline in state tax revenues was the worst on record.

While almost all taxes (except property taxes) are showing a big decline, income taxes are notably declining:

The personal income tax decline was particularly sharp, an unprecedented 17.5 percent in nominal terms. The inflation-adjusted decline in state personal income taxes was the greatest in the 46 years for which quarterly data are available.

But that was the first quarter!  Well, the second quarter isn’t looking better:

Early figures for April and May of 2009 show an overall decline of nearly 20 percent for total taxes, a further dramatic worsening of fiscal conditions nationwide. Preliminary figures for the state fiscal year 2009 indicate around 8 percent decline in total taxes, 13 percent in personal income taxes, and 5 percent in sales taxes.

There is one spot of good news, however:

The local tax slowdown has been less pronounced than the state tax slowdown. In the first quarter of 2009, local tax collections rose by 3.9 percent, driven by 7.4 percent growth in property taxes.

Even this, however, has a grey lining—property taxes are still based on older valuations which are no longer accurate in most municipalities.  People are paying property taxes for more than their properties are worth, and given that many are suffering from large income declines (or there wouldn’t be the huge decline in income tax), this means many are paying more than they can afford.  This is also a lagging measure, and as properties are revalued we can expect this number to start to decline.

Sales taxes are also down a wopping inflation adjusted 9.5%, also the worst on record (the previous worse being the third quarter of 91 at 6.9%.

This downturn, then, has put a massive hurt on States.  California is the worst off, followed by New York, but most are hurting.

There are some where taxes are up: Maryland, Indiana, Iowa, North and South Dakota, Arkansas , Kentucky, Alaska, Montana and Oregon.  Everyone else is down.E

The results of state cuts to services, which are happening and will continue to happen, will be devestating.   In an economic downturn government needs to increase spending to offset the fact that private spending is down.  If government does not do so, especially in a severe downturn (I think we can agree this on is) it risks making the recession or depression even worse.  This is why, next to making 40% of the federal stimulus bill tax cuts, cutting aid to the states was the stupidest part (or rather, not part) of the bill.

California, in its budget “compromise” took 4 to 5 billion from the munipalities (since their tax base is doing better than the state’s) and cut 6 billion from education.  While other states cuts will not be as brutal (and other states can raise taxes, unlike California, thanks to its completely dysfunctional proposition and majority requirements) they will still be ugly, and will both deepen and lengthen the recession.

This is your government on conservative ideology: push key spending down to states, which can’t tax or borrow the way the federal government can; insist on tax cuts over real stimulus, and then wonder why the stimulus doesn’t work.  None of this is unpredicted, at the time of the stimulus cuts economists said the state relief was one of the most important parts of any good bill.

What we got wasn’t a good bill, and the consequences will continue to pour in.  Dysfunctional states plus a dysfunctional federal government, plus conservative ideology equals devestating cuts on services people need most during a downturn, and which the economy needs most.

Obama to blogs: Help!

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On July 21, 2009

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So, Obama had a conference call with bloggers, and urged them to help him pass his health reform bill (a bill most liberal bloggers would have preferred was single payor, something Obama ruled out day one.) I find this… fascinating.

When I was dealing with the various Democratic primary campaigns in 2007 and 8, the one which did the least outreach to bloggers and which was the most closed and insular was the Obama campaign.

When Obama became the nominee, things didn’t change. Well, except once. After the Republican convention, when Obama was behind briefly, suddenly the Obama administration wanted to talk to bloggers. A lot. The moment his numbers improved, the door went back to its prior “one inch open, shout, and maybe someone will ignore you” position.

I found that interesting then. I find it interesting now.

I also do truly hope Obama gets through a bill which includes all his criteria:

the President mentioned his criteria for reform: Does it cover all Americans; Will it drive down costs over the long-term; Will it improve quality; Are prevention and wellness included; Does it contain insurance reforms on issues like pre-existing conditions; does it provide relief to small business; and, is there a serious public option. He warned that the different bills coming from the House and Senate may not have all of those provisions, but the conference committee will be critical.

And I hope it’s not just a pep talk for the gullible troops.  I hope, more, that it’s clear he got all those things in a meaningful form rather than getting a bill through to get a bill through

And hey, last time he stopped talking to us when he didn’t need us.  I’m sure he’ll do the same thing again.  Which, oddly, leaves me hoping that he stops talking to us again soon.

At least he’s still inspiring hope in me.

Because Goldman Sachs Doesn’t Have Enough Influence In Government

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On July 21, 2009

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I am pleased to see the the Obama administration adding a Goldman Sachs executive to the team:

Robert Hormats, a vice chairman of investment bank Goldman Sachs, has been tapped for a key U.S. State Department post, White House officials say.

Hormats was named by the Obama administration Friday to be the department’s undersecretary for economic, energy and agricultural affairs, an official announcement indicated.

The good Lord knows, the problem with government these days is that the views of high finance, Wall Street and Goldman Sachs in particular are not given enough weight.  If we had listened to them when they wanted Glass-Steagall repealed, wanted limits on leverage weakened, wanted to make sure comlex derivatives weren’t regulated and so on, well, we wouldn’t be in this pickle.

So let me just be the first to say how wonderful it is that Goldman’s, and Wall Street’s, influence continues to grow in Washington.

(More seriously, putting a Goldman man into an economic diplomacy spot indicates that keeping the credit flows moving is very important to the Obama administration.)

Americans Lives vs. Insurance Company Profits: the real battle in healthcare reform

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On July 20, 2009

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Lying about healthcare, indeed fear-mongering about healthcare, has ramped up as insurance companies attempt to keep their profits.  Those profits are created by a system where the US spends 5% more of its economy on healthcare in exchange for the worst results of anywestern nation.  To insurance company executives, their profits, their executive salaries, and their bonuses, are not just worth lying for, but also worth killing for—or at least letting people die.

The Shona Holmes Healthcare Hitjob

Case in point: Shona Holmes is the current poster girl for the liars slandering Canadian health care in an attempt to discredit reform.  Ms. Holmes alleges she was horribly endangered by Canada’s healthcare system:

Both CNN and McConnell made a big deal out of Shona Holmes, an Ontario woman who claims she was forced by Ontario’s health system to go to the United States for life-saving surgery for a brain tumour. She claims that in 2005 delays in access to treatment at home made it necessary to go to the Mayo Clinic in Arizona and pay $97,000 for her care.

Her story sounds bad, doesn’t it?  Except, of course, it’s a lie:

On the Mayo Clinic’s website, Shona Holmes is a success story. But it’s somewhat different story than all the headlines might have implied. Holmes’ “brain tumour” was actually a Rathke’s Cleft Cyst on her pituitary gland. To quote an American source, the John Wayne Cancer Center, “Rathke’s Cleft Cysts are not true tumors or neoplasms; instead they are benign cysts.”

There’s no doubt Holmes had a problem that needed treatment, and she was given appointments with the appropriate specialists in Ontario. She chose not to wait the few months to see them. But it’s a far cry from the life-or-death picture portrayed by Holmes on the TV ads or by McConnell in his attacks.

In other words, her condition was not immediately life threatening, and it was prioritized accordingly.  But Holmes didn’t want to wait behind people who needed care more than she did, so she went the US where she could pay out of pocket to jump to the head of the line.

Healthcare Triage: US vs Canada

Here’s the deal: both the US and Canada prioritize patients, and both engage in health care rationing.  In Canada health care is prioritized by how urgently a patient requires treatment.  In America, to a much greater extent, access to medical care is prioritized by how much money the patient has.  Someone in the US who was sicker than Ms. Holmes was forced to wait longer for treatment because Holmes was rich enough to pay $97,000.

A Personal Perspective on Canadian Healthcare

I should add that I have firsthand experience with how the Canadian system prioritizes treatment.  In 1993, at the age of 25, I became very ill with ulcerative colitis.  I was hospitalized, and put on very expensive drugs.  About a week after being hospitalized, the nurse watching me called in my doctors on a Sunday because I was deteriorating so fast—pain killers were no longer having any effect (i.e., high doses of morphine were not working), I wouldn’t let anyone touch me, and I was becoming delirious.  At about midnight, they wheeled me into the operating chamber and took out my large intestine.  While they were digging around, they found out I had appendicitis, and they took that out too.  It would have burst within 2 days, and in my weakened state, it would have killed me.

Unfortunately, one of the treatments for ulcerative colitis involves immune suppressing drugs.  My immune system basically shut down, my liver almost shut down, and I spent almost another 3 months in the hospital, riddled with extremely painful and crippling infections and other problems.  At one point I was on 9 drugs; one of them was an antibiotic so expensive that only a single doctor in the hospital could approve it.  My gastroenterologist called the treatment the equivalent of “pouring gold dust into your veins.” I wasted away, my weight dropping below 90 lbs.  I often joke that I was old young: I’ve used a walker, crutches and cane.

The Universal Healthcare Bottom Line

The ultimate point of my story is simple: I got the care I needed, when I needed it, and I never paid a single red cent.

Which is good, because I couldn’t have afforded to pay.  I was young and had very little money.  The kind of care I received, even back then, would have cost hundreds of thousands of dollars in the US.

If I  had lived in the US, my parents would have faced a choice between paying for my incredibly expensive treatment, or watching me die.  They were both old, and it would have wiped out their savings entirely and thrown them into bankruptcy, and frankly, I don’t know how they could have supported themselves.  My life, at that cost, would have had too high a price.  I wonder how many Americans have had to make that calculation.

But I survived, and neither I, nor my parents, was bankrupted.  In similar circumstances I doubt all of those things would be true for an American 25-year-old trying to survive the same medical condition in America’s health care industry.

Healthcare Rationing, American-style

I have had two American friends die in the last 5 years who would have survived if they had had fully covered health care. (Note I didn’t say health insurance, that’s not what people need.  They need health care.)

One of them died of the flu.  He didn’t seek treatment because of the cost of his insurance co-payment, and he was found dead.

Another had a heart condition, but didn’t know it, because she didn’t have health care, because she couldn’t afford it.  If she’d had health care, she would probably still be alive.

Both of those people are dead because of people like Holmes, and the people behind her.  My two friends are dead because insurance company executives want to keep their obscene salaries, and force Americans to pay more for health care than they should.

So What’s the Healthcare Reform Fight Really About?

Billions of dollars are at stake in the battle for American healthcare reform.  That’s the sort of money executives, and their lobbyists, and their bought-and-paid-for politicians are willing to kill for: to let you, or your friends, or your family suffer and die. Think of your dead friends and relatives as collateral damage in the fight for health industry profits; that’s how the insurance executives see them.

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