Views from Eagle Peak » Financial

Overcome by Events

Jack — Sat, 30 Jan 2010 19:14:01 +0000

OBE, for short–that’s a much used phrase from a once upon a time former supervisor. Applied to projects, assignments, etc., it meant the task at hand no longer needed doing. Some might suppose that recent election results might make that an epithet applicable to health care reform. But as President Obama said in his state of the union address, it still is something needing doing. As an aside, in my own case, OBE also refers to the bronchitis that took a toll on me recently–a partial excuse for the interval between my last post and this one. So, a couple more installments on the main topic.

Prohibiting insurors from refusing coverage of pre-existing conditions seems a bit unfair to them on the one hand or a prescription for higher rates for everyone does it not? However, while there may be some cross subsidization by healthy people of sick people, consider the alternatives. Those sick people who can’t afford or are unable to obtain coverage, will go to emergency rooms–soaking up available resources from people with genuine emergencies. Those uncovered people will also be out and about in stores, schools, neighborhoods, etc., where any communicable illnesses they may have can impact on the rest of us. In other words, we may all wind up paying for or suffering on account of denying coverage to others. So in the long run, it may make more sense to find a way to pay for coverage for them, pre-existing conditions and all.

More on Health Care Reform

Jack — Mon, 04 Jan 2010 19:06:14 +0000

In most cases, insurance is something you buy to cover yourself in case the unexpected financial setback occurs–damage to your house or car for example. Or in the case of health, an acute illness or event such as a stroke or heart attack. On the other hand, you can and should expect to have some routine preventive care like physicals, vaccinations, periodic blood tests or various scans depending on your age and gender. While the high cost of treating acute illnesses is something few people can absorb absent insurance, the routine tests could be afforded by some to many people. Still, insurers are generally happy to cover payment for the preventive care because, at least in theory, that may lower the risk of the much more expensive acute care. How likely it is for an individual to need the pricier care is what makes the risk pool definitionand the pre-existing condition issue a driving concern in the health care debate.

The theory of insurance is that among a large group of people, only a relatively small percentage will suffer very severe ailments necessitating very costly medical treatments. Accordingly, the risk-based premium set for the members of the group of insureds can be set low enough for the premiums to be affordable (much more affordable than risking one’s own bank account). Of course, this means that if you are very healthy, you are subsidizing sicker people’s medical care. On the other hand, if you are the sickly one, you have other people paying for you. Still, I for one would rather help someone else pay their medical bills than be sick myself and make out better financially. In any case, a major component of the health care reform debate focuses on preexisting conditions.

Health Care Reform, continued

Jack — Sun, 27 Dec 2009 20:36:59 +0000

Because health care (chiefly what hospitals, doctors, laboratories, pharmaceutical companies and drug stores provide us with) is so expensive, most people find it difficult if not impossible to pay for out of pocket. Well duh! Yes, I know, it is so obvious–but I mention this only as a preface to serve as a distinguishing feature to the the health insurance issue. Insurance, in the general sense, is a pooling of risk by individuals who contract with an insurer who promises to reimburse them if stipulated risks or events occur. One can buy insurance against almost any form of risk. You buy whole life insurance and “win” the bet with the insurer if you die earlier than the time by which your premiums exceed the policy payout. You buy term life insurance and pay a lot less during your 40s or 50s because the insurance is for a fixed period during which it is not so likely you will die. Property and casualty insurance covers your house, your car, your boat, or you as an individual against loss due to covered perils or liability to others for harms caused on your property or by your negligence. There are many other forms of insurance, including health insurance. But health insurance has some peculiarties, which partially explains the difficulties of making sense of health care reform.

Like other forms of insurance, the insurance companies ostensibly base their premiums on the risk that they will have to pay out on the health insurance policies. But they earn their income not simply on the difference between the payout and the premiums but on the revenue earned on the investment of the capital in the form of premiums. So when the stock market goes south, they, like other institutional investors take heavy hits. Then again, in the case of health insurance, many major companies are not-for-profit rather than stock holder owned. Accordingly, they don’t have to win on the investments–except they do if they want to price their products correctly. Also, unlike the case of homeowner insurance–payouts for which may ebb and flow with hurricanes, earthquakes and other disasters, but otherwise is relatively less risky for the insurer–medical insurance can reliably expect to pay out substantial sums every year for many people. More on this in the next post.

Oh no, Health Care Reform

Jack — Wed, 23 Dec 2009 20:22:17 +0000

I didn’t really want to do it, but I need a topic that lends itself both to some amount of continuity and also fits the notion that this blog is about expressing what really is happening–reaching beyond ignorance and illusion. So as arrogant of me as it may be, I will latch onto this topic and like Clarissa, try to explain it all. First, some bold statements without citations of authority (because it’s my blog and besides, if you don’t believe me you probably won’t check the references anyway): The United States does not have the best health care system in the world. (If you doubt that, check infant mortality, life span, incidence of diseases and disabilities with other industrialized or “first world” nations). There are more (on a percentage basis and an actual number) uninsured and underinsured people here in the U.S. than in several other nations. We get less “bang for the buck” here than many other countries–in other words, we pay more for inferior care. Oh yes, there are countless high tech tools and innovative processes available to American patients, but they are also available elsewhere and they may not be most effectively utilized. OK, that is it for starters, we will do more on this every few days.

Sometimes Economists Don’t Make Cents

Jack — Mon, 30 Mar 2009 16:59:20 +0000

One would expect an economics professor from Harvard, and a president emeritus of the National Bureau of Economic Research at that, to know whereof they speak on matters of dollars and cents. Martin Feldstein argues that the Obama administration should withdraw its proposal to reduce the charitable tax deduction of higher income (over $250,00 for married couples) donors to 28% from the 33% or 35% benefit they now enjoy. He notes:

“A substantial body of economic research shows that, on average, each 10 percent reduction in the cost of giving raises the amount that a person gives by about 10 percent. ”

Without expressly claiming studies supporting the corollary, he goes on to illustrate that a 10% increase in cost will conversely lower donations. Ironically, his explanation better makes the case for adopting the Obama proposal rather than for defeating it. He points out that the effect of the change from 35% to 28% is a 10.8% increase in the cost of giving. Accordingly, he suggests a donor of $10,000 might reduce his donation to $9,000 or 10%. As a result, the giver would pay $980 more dollars in taxes but save the $1,000 in donation–leaving him ahead $20. He says that:

“This is a hypothetical example, but the responsiveness of giving and tax revenue reflects the evidence regarding how people respond to changes in tax rates.”

Seriously?! To someone who can afford to give $10,000 to charity, the person would short his favorite charity $1,000 so he can have an extra $20 in his pocket? While giving the government $980 instead? This is a slap upside the head duh moment in the sensibility of economic theory. Having made this abundantly clear, I think Martin Feldstein eloquently has affirmed President Obama’s conclusion that this proposal should have little effect on charitable donations and a positive effect on tax revenues. Without this explanation, there might have been some foolish people out there who were actually opposed to the proposal.

Yes, help the automakers

Jack — Fri, 12 Dec 2008 16:57:11 +0000

Are bailouts of industries a good thing? Probably not, generally speaking. On the other hand, when in a financial crisis like the one facing America, they may be necessary. I find it peculiar that the financial “industry” (they manufacture or produce no goods; only facilitate production by others) could relatively easily obtain a $700 billion bailout but the auto industry has difficulty getting a dime. Note that should GM and Chrysler fail, it will have devastating impacts across the economy due to not only the umemployment of the car maker’s personnel but also collateral damage to all the companies that provide goods and services to the car makers.

Republicans in the Senate insist that the UAW give up wages and benefits that exceed the non-union labor costs at other car makers in America. This is nuts. Labor costs do make them less competitive with other companies. They were able to get over that handicap until now through the revenues they received from selling big SUVs, trucks, etc. Why can’t they do so now? Consumers are unable or at least worried about buying cars because of the financial crisis. Sure the car makers should have went with less expensive, more fuel efficient vehicles a long time of go. But if buyers didn’t want those oversized gax guzzlers, GM and the others wouldn’t have been able to sell them. Now that the buyers are unemployed, the price of gas jumped through the roof, and financing is tough, people are not buying cars. Not only that, but the car dealers can’t get inventory financing due to the financial crisis. The bottom line: the financial crisis is more of a factor in the car maker’s situation than the labor costs or their own management decisions–unlike the financial industry, Wall Street and the banks. It was the risky, greedy, management decisions of the latter that prompted the crisis and the need for a bailout. With unclean hands, they get relief but the car makers don’t?! Unbleepingbelievable!

Waiting for November 5th

Jack — Thu, 30 Oct 2008 16:11:18 +0000

I am getting impatient. I want the election to be over so I can stop watching Anderson Cooper, Rachel Maddow, Chris Matthews, Larry King, Nightline and local news. What else is there to blog about right now but the election? Plenty of stuff; the same stuff that I used to blog about. But I am consumed by the election. Watching Obama’s 30-minute infomercial reminded me how financially fortunate I am. I won’t brag or bore you with the details, other than to mention that my wife and I both were able to retire at 55 and do not have work or worry about income. That is not so for many people in America. I can understand, although not agree with, the choices of some voters to support a political party and candidates that want to dictate the sexual and reproductive habits of Americans. I find it more difficult to understand how the social conservatives, many of whom may not be as well off financially as me or the leaders of their party, can so readily buy the laissez-faire policies of socalled fiscal conservatism. I say socalled because while Republicans continually label Democrats as “tax and spend,” many (if not most) Republicans on the national and local levels spend as much or more than Democrats but they don’t tax–they spend at a deficit. Look at George Bush years as the paradigm. When Democrats brought fiscal order to Congress a number of years ago, it was through “pay as you go” budget programs. At the same time, while the socially conservative Republicans want to regulate what goes on in America’s bedrooms, they care little what goes on in America’s boardrooms. Look at the bailout for the results of that perspective. So I am looking forward to a new day and a new way on November 5th–or perhaps I should say on January 20th, 2009.

Masters of the Universe

Jack — Fri, 10 Oct 2008 15:07:36 +0000

What news will come from the MastersButtheads of the Universe today, a continuing fall in the global economy perhaps? Maybe the MBAs should have “learned to play the guitar,” as Mark Knopfler suggests, instead of learning to play the market. At least then the suffering we are enduring would have been limited to our ears instead of our financial well-being. They have succeeded in getting money for nothing far in excess of what any member of a band might get (except maybe Mick Jagger and friends).

Nichiren says, “When great evil occurs, great good follows.” (WND, 1119). So something good can come from this, amidst all the political posturing and finger-pointing. It’s not inappropriate, rather it’s essential to look at the causes of this collapse if the effects are to be avoided in the future. When you have politicians enabling, through a laissez-faire approach to the financial sector, these Buttheads of the Universe to take free-market capitalism to its most extreme the outcome is certainly foreseeable. Not, of course, to George “Herbert Hoover” (or maybe we should call him Beavis) Bush and his friends in the Republican party. Government regulation has a place, to protect citizens and taxpayers from the worst excesses of human nature. We have laws that punish criminals. We also have regulations and regulators to help prevent crimes. It may not be possible, practical or sensible to try to protect everyone from greed and stupidity, but it certainly is reasonable to have more oversight and control of the financial sector than we have had in recent years.

Let Capitalists Be Capitalists

Jack — Thu, 02 Oct 2008 14:58:21 +0000

It could be the slogan that was, “let capitalists be capitalists.” It likely will be again, soon enough. But the “bailout” is coming soon with restrictions that Wall Street and others haven’t seen for awhile. Don’t hold your breath that the pending legislation will reverse much of the effects of deregulatory fervor that swept the Congress and the White House over the last 20 years. Don’t expect any significant reregulation either. But it is interesting to note that to the extent Dubya had an ambition to achieve more than his father, he will have succeeded in ways he never imagined. George H. W. Bush left office with a huge deficit and an economy in the doldrums. Dubya came into office in 2001 with a budget surplus and a reduced national debt; he will leave with an economy in shambles, a gigantic deficit and a major increase in the national debt. Tax cuts, increased spending without revenues to support it and “letting capitalists be capitalists” is demonstrably not the answer to improve the American economy.

Financial Fallout and the Blame Game

Jack — Tue, 23 Sep 2008 12:57:00 +0000

Obama will tell you it’s Bush and his buddy McCain that helped make the current money morass happen. He is not entirely wrong but he is not entirely right either. Congress facilitated the mess by repealing the Glass-Steagal Act that kept the insurance, investment and banking businesses firewalled from one another. Institutional investors, including the pension funds that hold our retirement funds, could have exercised more of their clout in the proxy battles and the board rooms to hold management’s feet to the fire and restrained the most egregious excesses–but they didn’t. From a Buddhist perspective, to determine the causes made in the past one has only to look at the effects received today. So if we are suffering financial harm today, what did we do in the past? Well, some of us were also greedy. Some of us have cheated on our taxes, padded our resumes, paid for term papers written by others, goofed off and gotten over at work, etc. OK, so some of us may appear blameless. Nonetheless, we are suffering now. Take it as an opportunity to make the future better and take comfort in knowing that cause effect will work it’s way into the lives of the executives and the politicians who helped create this mess. We may need to help that along–in terms of the November election and the choices we make in investing our money, borrowing, etc.