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Archive for January 21st, 2013
Misleading Headline Of The Day (Healthcare)
January 21st, 2013 | 
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I stared at this yesterday when it first hit my screen in disbelief. They actually ran this crap?
While the most sweeping provisions of the health care overhaul have not yet gone into effect, plenty of Americans will still be paying higher insurance premiums this year — as insurance companies try to preemptively cover the cost of a tax increase included in President Obama’s Affordable Care Act.
That tax doesn’t take effect until next year, when other major provisions like the so-called “individual mandate” and insurance subsidies also kick in. But that hasn’t stopped insurance companies from charging higher premiums this year to cover the hike, as well as the cost of ObamaCare benefits such as free birth control and preventive care.
Premiums for individuals and small businesses are projected to increase due to the tax by roughly 2 percent this year and by as much as 3.7 percent in 2023, according to a widely cited analysis by the insurance industry.
2% and 3.7% eh?
Bah.
I have multiple reports of individual and small-group plan price hikes of 50, 60, 70, even 100% coming down this year and next. Against that 2 or 3.7% is going to sound like a Girl Scout picnic.
The problem is that the “must-issue” and “community rating” provisions in the law are just more cost-shifting and promise to make everyone pay more, because they force everyone to buy — including those who otherwise would not. Since there is no restraint on the services one consumes enforced by the size of your wallet there is no price feedback mechanism on the medical industry.
Couple that with the medical industry’s penchant to force the 330 million Americans to pay for the development of basically everything (because most of the rest of the world steals it, either directly or by threat and thus gets the technologies for reproduction cost) and you have an intractable problem.
Remember, Obama said that health insurance costs would go down with Obamacare.
So who’s have gone down? Mine have gone up! So has those of everyone who I know. I have not found one person who, for like-for-like coverage, has seen costs go down, although I’m sure you will find some — for example, someone with AIDS who currently cannot afford to buy at all!
Obamacare was sold to the American public as a means of “controlling” runaway health costs. It has done nothing of the sort; it has instead advanced that runaway, and yet we haven’t even felt the full brunt of the law yet.
This is where our budget problem comes from as well. There are plenty of people in Washington who knows this, yet you should note that there is a stony silence when it comes to discussing the root of the problem or doing anything to fix it.
Once in a while you will hear someone holler that Health Insurance companies are “ripping people off.” But that’s not true — look at Tenet, with a 5.6% return on assets and a 7.6% operating margin (gross) and profit margin of 0.33%, or Cardinal with a 1.78% operating margin (!) and a 1% profit margin. Raping the consumer? Don’t think so.
How about Merck? Everyone hates Pharma, right? Well, maybe you have a reason to — 23.4% operating margin and 14% net. Or you could look at Pfizer, 31% operating margin and 15.6% net.
That’s pretty damned healthy.
But let’s assume you zeroed Pfizer’s net — that is, you simply stole it (e.g. by taxation.) How much difference would it make to the Federal Government’s $850 billion in spending on health care last year?
Answer: About $6 billion, or well under 1%.
In other words, nothing.
That’s because the problem doesn’t lie there. It lies in the cost-shifting, especially international cost-shifting. It lies in the production of goods and servicesfor which there is no demand in the target markets at the market price, but there’s plenty of demand (and thus supply) at a cross-subsidized price.
It is not so simple to say “we’ll just tax the hell out of those Pharma folks!” That will do nothing. Likewise, you can’t squeeze the provider side; there’s nothing there to squeeze and blood does not flow from a stone.
So how do you get from here to where we need to go?
A couple of things have to happen — and happen now:
Cross-border cost-shifting must end immediately. The current rubric is that we “must” let Canada, for example, have Viagra for $2/pill or “they will break patents.” The answer is “tough cookies.” We must prevent the use of the guns of government to allow these firms to wildly distort pricing across boundaries, whether state or national.
Were that to go away then anyone could buy Viagra for $2 and bring it here; the price in the US would collapse. The makers of drugs and devices would argue that such will destroy the profit in these drugs and thus their development.
That’s only true if the price in the foreign nations remains artificially depressed!
What the drug and device companies argue is that these nations tell them that if they do not sell at “their” price then the nation will break their patents and the company will get nothing. Rather than knuckle under to extortion our answer as a nation must be this: You can do that, but if you do our development budget will go to zero, since we cannot recover our costs. If you take this action anyway, knowing that to be the case, there will be nothing for you to steal since the products will not exist in the first place.
The same applies to cost-shifting within provision of services. Juanita the illegal Mexican comes here 7 months pregnant, drug and alcohol addicted, and goes into labor. She has no money and (of course) no insurance. The hospital is required to treat her and her newborn in the NICU, running up a $2m bill which it has no means to collect.
Then you come along with an inflamed appendix and it costs $20,000 to have it removed because $18,000 of that charge is your forced share of Juanita’s care. This is theft and it must stop right here and now — because if it doesn’t the entire damned system is going to collapse.
There is no other nation on the planet that allows this sort of financial rape of their citizens to take place. We’re the only nation where it happens and we’re fools. The Democrats demagogue this issue but so have the Republicans — EMTALA, which is the law that forced this business model on hospitals, was a Reagan thing.
Without EMTALA a hospital would have rely on charitable donations for such procedures, because if it attempted to enforce such a cost-shift otherwise you would (and could!) choose to go across town to a hospital that refused to do so. You’d pay for your procedure there instead, and rather quickly the hospital that tried to force you to buy Juanita’s procedures would go out of business.
You would never accept a grocery store that charged you 10x as much as the next person in line because you looked like you had money but the person behind you did not. This scam is performed every single day in our nation’s hospitals and it, along with the above, is inflating the cost of care by a factor of five to ten over what your medical care would otherwise cost.
The bleating over how medical care is “unaffordable” and thus “requires” government help is self-inflicted. Were these distortions to be removed you could pay for your surgery with a credit card — yeah, the financing costs would be high, but you could do it. Or you could sell your fancy rims on your ride to cover the cost of your child’s birth.
This, my friends, is the root of our fiscal and competitiveness problem in America.
It is damn close to the entire budget issue that faces this nation at a Federal and State level.
We either fix it — and fix it now — or the rest of the debate about budgets and fiscal priorities simply will not make a damn bit of difference to the outcome.
Discussion below (registration required to post)
Posted in budget, Budget Deficit, Consumers, Cost of Living, Debt, Economic Crisis, Economy, Financial System, Government, health care, health care reform, Medical, Money, Monopolies, Monopoly, Prescription Drugs, prices | 
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How JPMorgan’s $5 Million Loss Rose 80-Fold In Minutes After “A Confrontation Between Traders”
Actually that title was misleading: there will be no disclosure of “how“, because we don’t know. What we do know is that thanks to the magic of JPM’s definition of “Mark-To-Market” accounting, a $5 million prop trading loss (and thus forbidden by the Volcker Rule) funded by depositor cash as it took place in the infamous CIO unit whose job was to manage “excess deposits” in a prudent manner, became a $400 million prop trading loss in the span of 88 minutes. But not during trading – the market was long closed. The adjustment was purely on paper.
From the JPM Task force report on the CIO “London Whale” fiasco, as referenced yesterday:
April 10 was the first trading day in London after the “London Whale” articles were published. When the U.S. markets opened (i.e., towards the middle of the London trading day), one of the traders informed another that he was estimating a loss of approximately $700 million for the day. The latter reported this information to a more senior team member, who became angry and accused the third trader of undermining his credibility at JPMorgan.At 7:02 p.m. GMT on April 10, the trader with responsibility for the P&L Predict circulated a P&L Predict indicating a $5 million loss for the day; according to one of the traders, the trader who circulated this P&L Predict did so at the direction of another trader. After a confrontation between the other two traders, the same trader sent an updated P&L Predict at 8:30 p.m. GMT the same day, this time showing an estimated loss of approximately $400 million. He explained to one of the other traders that the market had improved and that the $400 million figure was an accurate reflection of mark-to-market losses for the day.
And that, ladies and gentlemen, is how “mark-to-market” is implemented in the current commercial bank prop trading units – through a “confrontation between traders.”
We learn all this in the Task Force report. What we don’t learn is why there was a confrontation, what was the basis for the mismarking, and most importantly, how it is possible that in JPM’s wacky Schrodinger world, a Marked to Market loss can be $5 Million and $400 Million at the same time, depending on who a “confrontation” takes place between. Perhaps in JPM, Mark to Muscleis a more appropriate estimation of what is going on.
Why should readers care? Because this 80-fold delta in potential losses is funded, and thus impacts, something dear to all those who have savings at JPM. Their money. Money, which should not be used to speculate in fashion that means an a full wipe out of capital is purely in the eye of the beholder.
What it also means for all other “mark to market” estimates of JPM, and all other banks’ profitability, we leave to readers to infer.
Finally, some much more deserved criticism of the JPM’s Task Force “report” comes from Bloomberg’s Jon Weil:
[H]ow did JPMorgan’s chief investment office, which manages deposits that the bank hasn’t lent, go from being a conservatively run risk manager to a profit center speculating on higher-yielding assets such as credit derivatives? The company’s report, conveniently, said this pivotal question was outside the inquiry’s scope. It’s worth noting that it was Dimon who pushed for the transformation several years ago, as Bloomberg News reported last spring.“Although the task force has reviewed certain general background information on the origin of the synthetic credit portfolio and its development over time, the task force’s focus was on the events at the end of 2011 and the first several months of 2012 when the losses occurred,” the report said.
The head of the task force that produced the report, Michael Cavanagh, is the co-CEO of JPMorgan’s corporate and investment bank. So it isn’t as if there was a pretense that this was some sort of independent review. The company didn’t disclose the task force’s other members.
The report dodged important disclosure issues. The facts in the report suggest there were serious shortcomings before 2012 in the internal controls over JPMorgan’s valuation processes. Some employees manipulated the numbers to make the trading losses look smaller. And when JPMorgan restated its first- quarter 2012 results last summer, the company acknowledged it had a material weakness in its controls as of March 31. Yet the bank hasn’t amended past disclosures to show control weaknesses in any earlier periods. Why not? This week’s report didn’t address the question.
Another example: During an April 13 call with analysts, about a month before JPMorgan began acknowledging the magnitude of its losses, Douglas Braunstein, JPMorgan’s since-demoted chief financial officer, said “those positions are fully transparent to the regulators” and that the bank’s regulators “get the information on those positions on a regular and recurring basis as part of our normalized reporting.” The statement wasn’t credible then. There’s no reason to believe he had any basis for the remark. Yet the task force’s report didn’t touch it.
The report also included this bizarre disclaimer: “This report sets out the facts that the task force believes are most relevant to understanding the causes of the losses. It reflects the task force’s view of the facts. Others (including regulators conducting their own investigations) may have a different view of the facts, or may focus on facts not described in this report, and may also draw different conclusions regarding the facts and issues.” In other words, we haven’t been told the whole story.
And this is the opacity that one gets when a firm sets off to expose what should otherwise be perfectly public information in the first place. One does start to wonder: if America’s banks go to such great lengths to mask how ugly the behind the scenes truth really is, is the true undercapitalization of the US banking sector in the trillions… Or tens of trillions?
Posted in Banks, Corruption, Debt, Economy, Financial System, Fraud, Money | 
Tags: Banks, Crime, Debt, Fraud, Law Enforcement, Lies, Wall Street |
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The Grand Tradeoff of Risk/Innovation/Growth and Financial Security
The very promise of permanent security dooms the economy to stagnation as complicity, avoidance of risk and passivity are incentivized.
Focusing on econometric data to make sense of our economic ills blinds us to deeper dynamics, for example, the Grand Tradeoff of risk and financial security.
We can visualize this as a seesaw: if financial security is the priority, then risk is avoided. If risk and innovation are rewarded, then security is off the agenda.
Contrast this ontological tradeoff with what Central States around the world have promised their populaces: rock-solid, permanent financial security via guaranteed mortgages, bank deposits, pensions, education and healthcare, and high growth to pay for it all based on ever-expanding innovation.
Sorry, developed-world people; you cannot have it both ways. If everyone is promised financial security, a premium is placed on risk avoidance and complicity with the Status Quo. Why risk failure and disorder for an unpredictable pay-off when “going along to get along” will reap guaranteed pensions, healthcare and an assortment of other entitlement goodies?
If you want growth, you must reward risk and innovation and foster a culture that accepts failure and low-intensity disorder as the norm. Promising financial security in this environment is promising the impossible.
That leads us to the deliciously perverse Grand Irony of the Grand Tradeoff: by fostering expectations of guaranteed financial security, you incentivize risk avoidance, which fosters a low-risk, low-innovation, low-growth economy that is incapable of expanding fast enough to fund all the grandiose promises of rock-solid security made to citizens.
The very act of promising financial security guarantees the promised security is illusory.
If you want a high-innovation, high-growth economy, you must reward risk and accept constant disorder and failure–the very antithesis of guaranteed financial security.
Risk cannot be eliminated, it can only be suppressed or transferred to others.This is the foundation of all three of my recent books: An Unconventional Guide to Investing in Troubled Times, Resistance, Revolution, Liberation: A Model for Positive Change and Why Things Are Falling Apart and What We Can Do About It.
In promising financial security to hundreds of millions of citizens, Central States have in effect claimed that risk–that the promises cannot be kept–has been eliminated. This is an ontological impossibility. Risk cannot be eliminated, it can only be pushed beneath the surface or transferred to others.
If it is suppressed by financial repression and intervention, it doesn’t vanish; it slowly builds up like tectonic pressures that are suddenly released in the financial equivalent of a massive, unpredictable earthquake.
If the risk is transferred to the system itself, then it will eventually bring down the system.
Promising financial security is also promising that risk has been systemically eliminated. This is the fundamental dynamic of the “social contract” that underpins societies and economies from Europe to Japan. It is a social contract constructed on an ontological illusion.
If risk is avoided, suppressed and unrewarded, the economy will stagnate and the costs of the promised financial security will crush it. If risk is embraced and rewarded, the resulting expansion is based on a high rate of disorder and failure. Security cannot be promised, because security is illusory.
The very promise of permanent security dooms the economy to stagnation as complicity, gaming the system, avoidance of risk and passivity are incentivized.
“There is no security on this earth; there is only opportunity.”
(Douglas MacArthur)
Charles Hugh Smith – Of Two Minds
Posted in Debt, Economic Crisis, Economy, Financial System, Fraud, Government, Money |
Tags: Bailouts, Banks, Central Banks, Debt, Fraud, Government, Inflation, Lies, Monetary Policy |
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The Sovereign Debt Bubble Will Continue To Expand Until – BANG – The System Implodes
Why are so many politicians around the world declaring that the debt crisis is “over” when debt to GDP ratios all over the planet continue to skyrocket? The global economy has never seen anything like the sovereign debt bubble that we are experiencing today. The United States, Japan, and nearly every major nation in Europe are absolutely drowning in debt. We have heard a lot about “austerity” over in Europe in recent years, but debt to GDP ratios continue to rise in Greece, Spain, Italy, Ireland and Portugal. In general, most economists consider a debt to GDP ratio of 100% to be a “danger level”, and most of the economies of the western world have either already surpassed that level or are rapidly approaching it. Of course the biggest debt offender of all in many ways is the United States. The U.S. debt to GDP ratio has risen from 66.6 percent to 103 percent since 2007, and the U.S. government accumulated more new debt during Barack Obama’s first term than it did under the first 42 U.S. presidents combined. This insane sovereign debt bubble will continue to expand until a day of reckoning arrives and the system implodes. Nobody knows exactly when that moment will be reached, but without a doubt it is coming.
But if you listen to the mainstream media in the United States, you would be tempted to think that this giant bubble of debt is not much of a concern at all. For example, in a recent article in the Washington Post entitled “The case for deficit optimism“, Ezra Klein wrote the following…
“Here’s a secret: For all the sound and fury, Washington’s actually making real progress on debt.”
How many times have we heard that before?
About a decade ago, government officials were projecting that we would be swimming in gigantic government surpluses by now.
Instead, we are running trillion dollar deficits.
But right now there is a lot of optimism about the economy. The stock market recently hit a 5 year high and the business community is loving all of the false prosperity that all of this debt is buying us.
Even Warren Buffett does not really seem concerned about the exploding U.S. government debt. He recently made the following statement…
“It is not a good thing to have it going up in relation to GDP. That should be stabilized. But the debt itself is not a problem.”
Oh really?
A debt of 16 trillion dollars “is not a problem”?
Perhaps we should all run our finances that way.
Why don’t we all go out and open up 20 different credit cards, run them all up to the max, and then tell the credit card companies that we can’t pay them back but that it “is not a problem”.
Of course real life does not work that way.
The truth is that government debt is becoming a monstrous problem all over the globe. Just check out how debt to GDP ratios all over the planet have grown over the past five years…
United States
Debt to GDP ratio in 2007: 66.6 percent
Debt to GDP ratio in 2012: 103 percent
United Kingdom
Debt to GDP ratio in 2007: 43.4 percent
Debt to GDP ratio in 2012: 85.0 percent
France
Debt to GDP ratio in 2007: 63.7 percent
Debt to GDP ratio in 2012: 86 percent
Germany
Debt to GDP ratio in 2007: 67.6 percent
Debt to GDP ratio in 2012: 80.5 percent
Spain
Debt to GDP ratio in 2007: 39.6 percent
Debt to GDP ratio in 2012: 69.3 percent
Ireland
Debt to GDP ratio in 2007: 24.8 percent
Debt to GDP ratio in 2012: 106.4 percent
Portugal
Debt to GDP ratio in 2007: 63.9 percent
Debt to GDP ratio in 2012: 108.1 percent
Italy
Debt to GDP ratio in 2007: 106.6 percent
Debt to GDP ratio in 2012: 120.7 percent
Greece
Debt to GDP ratio in 2007: 106.1 percent
Debt to GDP ratio in 2012: 170.6 percent
The Eurozone As A Whole
Debt to GDP ratio in 2007: 68.4 percent
Debt to GDP ratio in 2012: 87.3 percent
Japan
Debt to GDP ratio in 2007: 172.1 percent
Debt to GDP ratio in 2012: 211.7 percent
So how does all of this end?
Well, it is going to be messy, but it is very difficult to say exactly when the system will collapse under the weight of too much debt. Some nations, such as Japan, are able to handle very high debt loads because they have a very high level of domestic saving. Up to this point, an astounding95 percent of all Japanese government bonds have been purchased domestically. But other nations collapse under the weight of government debt even before they reach a debt to GDP ratio of 100%. The following is an excerpt from a recent Congressional Research Service report…
It is hard to predict at what point bond holders would deem it to be unsustainable. A few other advanced economies have debt-to-GDP ratios higher than that of the United States. Some of those countries in Europe have recently seen their financing costs rise to the point that they are unable to finance their deficits solely through private markets. But Japan has the highest debt-to-GDP ratio of any advanced economy, and it has continued to be able to finance its debt at extremely low costs.
When a government runs up massive amounts of debt, it is playing with fire. You can pile up mountains of government debt for a while, but eventually it catches up with you.
Over the past 10 years, the U.S. national debt has grown by an average of9.3 percent per year, but the overall U.S. economy has only grown by an average of just 1.8 percent per year. That is unsustainable by definition.
There is going to be a tremendous price to pay for the debt binge that the U.S. government has indulged in over the past decade. During Barack Obama’s first term, the amount of new debt accumulated by the federal government breaks down to about $50,521 for every single household in the United States. That is utter insanity.
If you can believe it, we have accumulated more new government debt under Obama than we did from the inauguration of George Washington to the end of the Clinton administration.
And most Americans realize that something is seriously wrong. One recent poll found that only 34 percent of all Americans believe that the country is heading in the right direction, and 60 percent of all Americans believe that the country is heading in the wrong direction.
If we keep piling up so much debt, at some point a moment of great crisis will arrive. When that moment arrives, we could see havoc throughout the entire global financial system. For instance, most people don’t really understand the key role that U.S. Treasuries play in the derivatives market. The following is from a recent article posted on Zero Hedge…
This time around, things will be far worse if nothing is solved. If the US loses another AAA rating, then the financial markets could face systemic risk. The reason for this is that US Treasuries are one of the senior most forms of collateral used by the banks to backstop the $600+ trillion derivatives market.
As any trader who trades on margin can tell you, when the value of your collateral is called into question, those on the other side of the trade come looking for you to put up more capital on your trades. This can result in assets being sold en masse (similar to what happened after Lehman failed) and things can get very ugly very fast.
For much more on the danger that derivatives pose to our financial system, please see this article: “The Coming Derivatives Panic That Will Destroy Global Financial Markets“.
Once again, nobody knows exactly when the sovereign debt bubble will burst, but if we continue down the path that we are currently on, it will inevitably happen at some point.
And according to Professor Carmen Reinhart, when this bubble does burst things could unravel very rapidly…
“These processes are not linear,” warns Prof. Reinhart. “You can increase debt for a while and nothing happens. Then you hit the wall, and—bang!—what seem to be minor shocks that the markets would shrug off in other circumstances suddenly become big.”
At some point the global financial system will hit the wall that Professor Reinhart has warned about.
Are you ready?
Posted in Debt, Economy, Financial System, Government, Money |
Tags: Banks, Central Banks, Debt, Government, Monetary Policy |
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