Bank of America will impose a five dollar charge per month for using your own money, that customers have deposited with them. Of course, BoA is making much less interest on the funds people deposit, so they feel justified in charging customers to make up for it. Well, I for one have voted with my pocket book, closing my account with them three days ago. Banks pushed debit cards so hard for the last ten years that they have now grown to be the preferred means of payment over credit cards. To be sure, it forces those consumers who otherwise might incur overly large credit card debt to live within their means. But why should you or I be responsible for the profitability of BoA? We can choose to pay cash, switch to another bank, or use credit. For years, I have chose credit. I pay the balance off every month and get cash back. Of course now that will be more difficult now that Chase, my MasterCard company has converted my card to this very complex reward system–but that is a topic for another post.

Mylanta liquid and tablets were voluntarily recalled in December for what J&J referred to as a mislabeling problem (failing to note the presence of a small amount of  alc0hol in the products). So how long does it take to print  new labels? This is market share that may never return. In the meantime, what do they say about the return, if ever, of these products on their corporate website? Nada, zip, not a word.

On the other hand, take a look at the take of Richard Brecker at J&J’s failure at mitigation of problems with Motrin, noteworthy in contrast to how they responded to the great Tylenol scare way back in 1982. It seems that the execs at J&J could be providing the script for an episode of Law & Order or perhaps Leverage.

I am not an investment advisor and this is not a financial blog, but when corporate executives, their PR teams and their legal staff seem most concerned with immediate CYA, (which admittedly the stockholders might prefer in many cases) rather than the long-term reputation in the public interest (which may ultimately aid the corporate bottom line) this does not look a winner to me. Without mentioning my favorite religion, who can doubt the principles of  cause and effect or in non-secular parlance, “what goes around comes around.”

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.

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.

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.

“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.

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!