Archive for June 24th, 2009
In 1993, Hillary and Bill Clinton promised us they had found a way to provide every person in America top-of-the-line (“Fortune-500”) healthcare without raising taxes or blowing a hole in the deficit, all while lowering the share of national income spent on healthcare (then at 13.4 percent of GDP) without rationing care. Alas, they were wrong. Their promises were inconsistent and impossible to fulfill.
HillaryCare was going to cost $1.2 billion dollars a day in 1994. (Read details here. . .) In today’s medical-care dollars, after taking medical-care inflation into account, that amounts to about $2.2 billion a day, or $788 billion a year. If one takes the 16 percent increase in population since 1984 into account, the annual price tag rises to $915 billion; and if the 19 percent increase in medical-care consumption as a share of national income is added to the equation (rising from 13.4 percent to 16 percent since 1993), the annual cost of HillaryCare today would slightly exceed one trillion dollars a year in 2009.
Today, healthcare spending comprises about 16 percent of national income and is projected by the Congressional Budget Office to rise steadily to 31 percent of GDP by 2035. As Hillary did before him, President Obama claims he can comprehensively reform the healthcare system to lower costs and stop healthcare spending from rising as projected. He, as did Hillary, claims to be able to staunch the rapid rise of healthcare spending without resorting to healthcare rationing while simultaneously guaranteeing high-quality healthcare to every American without raising taxes on the middle class and without increasing the federal budget deficit. (He has pledged to cut the federal budget deficit in half, down to $230 billion, by the end of his first term.)
President Obama’s rhetoric is very little different from Hillary’s 15 years ago. Yet, he refuses to put a specific proposal on the table for the American people to review and evaluate, and he is trying to steamroller a proposal put together in the congressional backrooms through the Congress by Labor Day. It’s the old “trust-me” routine.
So, the American public is left with a dilemma: If ObamaCare is really HillaryCare in new packaging, which his rhetoric and promises lead people to believe, his low-ball cost estimate of a trillion dollars over the first ten years is off by a factor of ten. It will actually cost a trillion dollars a year. If, on the other hand he really intends to remain within a budget of $100 billion a year without raising taxes, without rationing healthcare and without increasing the deficit, he has, as Ricky used to tell Lucy, “a lot of e’splainin’ to do.”
So Mr. President, which is it? Will ObamaCare be as good as HillaryCare promised or can’t the president live up to the Clintons’ promise? If not, he has an obligation to tell the American people specifically and in detail how much less they will receive under ObamaCare and how much more they will have to pay for it.
Here Comes O’s Version of Hillarycare – Larry Hunter, Social Security Inst.
June 24th, 2009
Diane Francis, Financial Post Published: Monday, June 22, 2009
American opponents to President Barack Obama’s announced reregulation of the financial sector are billing the issue as capitalism versus socialism or even communism.
It is not the case. This is not the economic version of the Cold War, and the search for a new architecture does not mark the death of capitalism.
In fact, free enterprise was nearly murdered by Wall Street, AIG and other reckless financial institutions. They did not meet their defined responsibilities. They bent the law to bypass rules governing their behaviour. Many of them abandoned traditional banking and got into the gaming business. And they brought the world to the brink in the fall.
The role of government is appropriate in the financial sector because of its importance to sustaining a healthy capitalist system. Banks, brokers, insurers and others are licensed by the government to benefit society by being astute gatekeepers to success. They deploy their own capital and savings from the public honestly by investing in worthy individuals and entities that will create wealth, then repay their loans.
Government’s role is necessary because these institutions, in turn, exist as a result of deposits from the public and shareholders’ money. They have a fiduciary obligation to responsibly use other people’s money for the benefit of all. The rules dictate who, what and how they lend or insure, as well as how they leverage.
But what Wall Street and the others did was lend, or insure, obscene amounts of money to inappropriate entities for inappropriate reasons without any market discipline. There were no clearing houses for the trillions in derivatives they created, no markets for them, no pricing mechanisms, no leverage restrictions, no capital allocation and no transparency or proper accounting.
They were not players in a free-enterprise system, but were gamblers rigging the system for their own benefit.
America’s financial punters sank the legitimate and regulated credit system. They collected upfront fees and played fast and loose with credit instruments; witness estimates that the notional value of credit default swaps and other risky “derivatives” could total up to US$600-trillion, or 10 times the world’s GDP.
Last fall, Washington was told by AIG and Lehman Brothers that the world had gone bust. Thanks to trillions in bank bailouts, and shotgun marriages, total collapse was averted.
Months later, there are positive signs. Consumer confidence has a pulse, at long last, though this has yet to translate into spending. Some 53 million people have lost their jobs worldwide and governments are in hock to the tune of trillions. Innocent victims include the world’s poorest nations and their citizens, including those who ran their fiscal and monetary houses in a responsible way.
Wall Street’s recklessness, and in some instances criminality, has destroyed credit, which continues to afflict third-party, real-economy businesses from Detroit (which already had problems) to retailers and most others.
The fix will take years, require international co-operation and wasn’t the fault of government or the rest of us. So the next time some Wall Streeter or financial-sector apologist is blabbing about how reregulation will kill capitalism, just remember it was capitalists, so-called “champions” in pinstripes, who nearly destroyed free enterprise by driving it into a wall.
June 24th, 2009
Two good ones:
How the Bailouts Ultimately Bashed the Banks – Nina Easton, Fortune
It’s Time to End the Grotesque Bailouts – Liam Halligan, Daily Telegraph
June 24th, 2009
By Robert Samuelson
Raised in an individualistic culture, Americans dislike the concept of the “welfare state” and do not use the term. But make no mistake, the United States has a welfare state, and its future is precarious. The true significance of General Motors’ bankruptcy lies more with this welfare state than with the battered condition of American capitalism.
Broadly speaking, the U.S. welfare system divides into two parts — the private, run by firms; and the public, provided by government. Both are besieged: private companies by competitive pressures; government by rising debt and taxes. GM exemplified the large corporation as private welfare state. In contracts with the United Auto Workers, GM promised high wages, lifetime employment, generous pensions and comprehensive health insurance. All this is ancient history: New workers get skimpier benefits.
As metaphor, GM’s bankruptcy marks the passage of this model. Companies still provide welfare benefits to attract and retain skilled workers. But these shelters against insecurity are growing flimsier. Career jobs remain, but lifetime job guarantees — whether formal or informal — are gone. Last year, about 50 percent of male workers ages 50 to 54 had been with the same employer at least 10 years; in 1983, that was 62 percent.
U.S. Can’t Deliver On All Its Promises – Robert Samuelson, Washington Post
June 24th, 2009
Weekly Economic & Financial Commentary – Wachovia Economics
Inflate This – Marc Chandler, Brown Brothers Harriman
Weekly Economic Report – Diana Furchtgott-Roth, Hudson Institute
Is Apple Computer a Buy, Hold or Sell? – Applied Finance Group
June 24th, 2009
The stock market’s damage has already been done. And if you’re one of those people near or already in retirement, you already know you’re going to have to work longer, save more or spend less.
This economic downturn has been steep enough and frightening enough to undermine the idea that the stock market, over time, will always deliver. So a lot of investors have retreated to a more conservative stance.
The wisdom of that move is debatable. The investment industry warns that becoming too defensive is costly in the long run. Its argument goes something like this: People are living longer, retirement may last 25 or 30 years and stocks are supposed to protect you from the ravages of inflation. And since stocks tend to outpace most investments over long periods of time, the industry says, your savings will do all right in the end.
But some people are no longer comfortable with that logic. There’s even a new study that contends holding stocks over long periods of time may be riskier than previously thought. Robert F. Stambaugh, a finance professor at the Wharton School at the University of Pennsylvania and a co-author of the report, said most investment research only accounted for the risk of short-term market swings around the stock market’s average gain over time. It doesn’t factor in the fact, he said, that the average itself is subject to change.
So what should retirees and pre-retirees make of all of this?
“If another decline in the market is going to bankrupt you or put you out of business or destroy your retirement account, you should not go back into the stock market,” said John C. Bogle, the founder of Vanguard and viewed by many as the father of index investing. “It’s not complicated. The stock market can go up and down a lot and nobody really knows how much and when.”
What’s worked for Mr. Bogle may not work for you, but his method isn’t a bad place to start. “I have this threadbare rule that has worked very well for me,” he said in an interview this week. “Your bond position should equal your age.” Mr. Bogle, by the way, is 80 years old.
That’s a rather conservative recommendation, by many financial planners’ standards. In fact, Vanguard itself offers products that are more aggressive. Its target-date funds — whose investment mix grows more conservative as retirement nears — recommend that people retiring in 2010 (generally, people who are 65) should split their savings evenly between stock and bonds.
Charles Schwab, by contrast, has recently reduced the risk for its target-date funds. The company’s 2010 fund will allocate about 40 percent to stock funds next year, down from 50 percent in the past. “It’s a reflection that our clients’ appetite for risk has changed,” said Peter Crawford, a senior vice president at Charles Schwab Investment Management.
But you shouldn’t simply view your investments through the lens of how much you allocate to different investments (though you will need to come up with a plan). Instead, you should work your way backward. First, consider how much you will need to live when you’re retired and then figure out how you’ll pay for it.
Nearing Retirement
Ideally, you should have started to slowly shrink your stock position over your working career. But some financial planners have become more conservative about that. Before the market’s sharp downturn, Warren McIntyre, a financial planner in Troy, Mich., typically reduced his clients’ stock allocations by about 1 percent each year. Now, for older investors, he ratchets down their stocks by 2 percent each year once they reach 60. So a 65-year-old’s investments would be evenly split between stocks and bonds.
Other planners are taking even more defensive positions. “We are still very concerned about the status of the economic recovery and remain quite defensive as a result,” said Chip Addis, a financial planner in Wayne, Pa., who invests his clients’ portfolios in only 40 percent stocks.
Of course, there’s no one formula. Milo Benningfield, a fee-only planner in San Francisco, for instance, said he put a 61-year-old client in a portfolio with 60 percent in diversified stocks and alternatives (like real estate) and 40 percent in fixed-income (largely split among high-quality, short-term and intermediate-term bonds and cash). But this client can afford to take that risk — the client owns a house, rental property and has other holdings outside the portfolio.
The picture may change for pre-retirees who are 61 and close to meeting their savings goals, but can’t afford to lose any money. “We would ask ourselves to what degree, if any, can you afford equities,” Mr. Benningfield said. If inflation was their only concern, he might invest their money across a ladder of Treasury Inflation-Protected Securities, or TIPS, which are backed by the government and keep pace with inflation.
Your Money: For Older Investors, Old Rules May Not Apply – NY Times
June 24th, 2009
