Saturday, October 31, 2009

Five hundred million per page

Representative Price points out that the health care night mare that Pelosi spat out will cost Five Hundred Million Dollars per page.

Trick or Treat

Happy Halloween.

For a super spooky treat this Halloween, the Leader of the House of Witches brewed up a special concoction called the "Affordable Health Care for America Act". The PDF is large. 1990 pages. The act contains a number of tricks played on the people and plenty of treats for lobbyists and the ruling class.

In a press release about bill, the Leader of the Witches cackled on air about how progressives have been skillfully manipulating the country for over a century with the goal of transition America from a free society with an open health care to a closed society with government care.

All the while, the half wits on the left lap up the notion that the over-priced, hyper-regulated health care system was somehow a manifestation of the free market.

Reading HR3200 made me sick. This new bill looks like it is twice as large and twice as bad.

On the bright side, one should realize that all government programs get worse with age. If we compare this bill with the health care our children will receive from the government, then we should feel lucky.

We would be luckier still if a miracle happens and the bills fail.

Staring at this bill. I feel worse that I would had I just eated a whole bag of Halloween candy.

Thursday, October 29, 2009

Reforming in the Wrong Direction

In speaking small businesses today, Barack Obama issued forth a technocratic vision of business. Small business is a petty small-minded affair in which people take out loans for predictable static returns. Small businesses hire people at fixed salaries, pay fixed insurance rates, etc., etc.. The small business owner is nothing but a soulless cog in a computer simulation run by an omnipotent 2nd year econ major.

Barrack Obama further claims that he is wonderful beyond any leader in the history of civilization as he and the Democratic Congress wish to relieve the petty-minded small business owner of healthcare though one of the greatest extra-Constitutional power grabs in the history of the nation. (NOTE: Amendment 10 of the Constitution reserves health care and most other matters to the states or to the people).

Sadly, a large number of Republican politicians seem to share this same technocratic vision of the economy in which the economy is top down equation that can be controlled with the right inputs from an unbridled Federal government.

The top down vision of the economy created by Marx is not new. It was, in fact, the rule of the feudal society and a long period called The Dark Ages.

From the Renaissance through the penning of the Wealth of Nations by Adam Smith, people began developing a different idea of the economy. Both the feudal and Marxian system see the wealth of the nation flowing from the glorious leader, through the political structure to the petty-minded people.

The free market brand of thought saw wealth as a creation of the human mind. Wealth was created by the investments of the people. The wealth of the nation did not flow from the king through the people, but was the accumulation of the wealth created by the people in their various undertakings.

If Adam Smith is correct, the Obama's stimulus and health care reform are not the cure of our economic woes, but the cause of it.

The technocratic view is not unique to Democrats. An increasing number of Republican politicians (Alan Greenspan, Poulson, etc.) appear to have adopted this view. Greenspan was enchanted with the notion that an all seeing and all knowing economist at the Federal Reserve can regulate the economy through a fractional reserve lending system. The Feds lend out a dollar at a given rate. That dollar is then lent by banks a dozen or so times

The fractional lending regime created an economy where people took wild margin plays against equities. The system of margin plays has proven to do little more than to create series of wild bubbles and chaotic market moves.

If the technocratic view is the problem, the cure is for people to deleverage and to return to the free market economy described by Smith … which was controlled by people building equity and saving … opposed to people taking out loans and running margin plays against the economy.

Health care reform should move away from the technocratic vision of insurance (with fixed monthly payments) to one in which people are building equity in anticipation of future medical expenses … such as the Medical Savings and Loan.

If the technocratic vision of a static economy that runs like a computer program is wrong (and Adam Smith was right); then the health care reform before Congress is reforming our health care system in the wrong direction.

Wednesday, October 28, 2009

Election Securty

The thing about this democratic nation building is that the nation builder needs to be committed to the operation for the first three or four elections. There needs to be one or two substantive changes in administration before the nation builder can safely leave ... otherwise, the first administration in power is likely to devolve into a dictatorship.

The two things the nation builder must focus on is the integrity of the election. That means assuring the election is fare. The nation builder also needs to make sure the voters feel secure.

I am happy that Afghanistan is having a run off election. Back to back elections like this give the people a change to hone the voting process.

I am sad, however, that the US waffled on sending additional troops as the additional troops might have help provide better election security during the run off election. The Christian Science Monitor reports that Taliban attacks are already underway to compromise the election. It is the election process that they fear the most as an election process legitimizes a government.

I have to admit, I had agreed with Obama's sentiment that life would be better if the first war with Al Qaeda were restrained to Afghanistan. Looking at maps and watching the hostilities of the "necessary war" unfold, it is suddenly clear that a war with fundamentalists in Afghanistan necessarily becomes a war with fundamentalists in Pakistan.

The strategy of making Iraq the primary theater of battle makes some sense in that light. In 2003, Pakistan was still under the yoke of the dictator Musharraf. If Afghanistan was the primary battleground, then all of the people who went to fight the Americans in Iraq would have flocked to Pakistan and caused a civil war there.

Diverting the hostilities from Pakistan allowed room for a democratic process to emerge in Pakistan.

War is a stupid thing. The best strategy for ending wars is invest the effort to defend the civilians while promoting alternative means of dispute resolution to killing. Conversely, the enemies of the United States have learned that the way to beat us is to kill large numbers of civilians.

Iraq Body Count lists the documented deaths during the war at around 100,000. iCasualties puts the US forces casualties at 4600. These figures are horrible. It was enough to destroy George Bush and utterly wipe out the Republican party. The figures are lower than the genocides of Hussein. It was a quarter of the Darfur genocide, an eigth of the Rwanda genocide.

Considering that the progressive press was cheering on the body counts (making a high body count the primary object of the insurgency) it is surprising that the figures were not higher.

High civilian death tolls are horrid. Any time the US chooses to engage in an area, we have a moral obligation to engage with sufficient forces to prevent the civilian body count as the body count will always be used as in propaganda against us.

The surge in Iraq worked because it got enough troops on the ground to protect the civilians giving people enough confidence to work the new government. The surge in Afghanistan seems to be shy of the troops needed to protect civilians. Much as we want to get out of there. We should invest the US troops to protect the civilians while we are there.

That said. I feel sad that there may not be enough security in Afghanistan to provide the war weary people security during its run off elections.

Saturday, October 24, 2009

The Nature of Fraud

Rip-Off Report has a piece on a Perry Belcher which provides insight on how fraud works. The clown sold ebooks (supposedly written by experts) and various medical supplements (supposedly manufactured under FDA guidelines) and a bunch of other garbage. Here are just a few of the domains created Mr. Belcher:,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,

Apparently there are many others.

The problem with fraud isn't so much that a large number of people are fraudsters. The problem is that, once a person is willing to cross the line into the extra-legal, they can spew forth with a great deal of garbage. In the case of the internet, once a person knows basic HTML and learns that they can host multiple domain names off the same web account, then they can start spewing forth fraudulent sites for $7.95 per domain name.

BTW, there really isn't a good way to spot fraudulent sites by looking at them. One rule of thumb is to avoid doing business with any site that does not display contact information. Even though it means paying sales tax, it is always better to do business with someone within your state or town to some one far away as it is easier to take local firms to small claims court.

Finally don't be taken in by slickness of a site. The people in the fraud game design sites for effect. A fraudster might create a thousand sites from a thousand different templates. If one or two strike the public as authentic, they run with that. You can copy the HTML from any authentic looking site. Change things around a bit, and you have yourself an authentic looking site in an hour or two.

Looking at the great amount of questionable web sites on the net. I've come to the conclusion that a person should only buy physical goods from stores with a combination of a brick and mortar store and web site. Cyber goods are a little bit different. I wouldn't expect a bands, music download sites, or software firms to have physical store fronts. In such cases, I do research on Hoovers, Rip Off Report, the BBB and Chamber of Commerce before doing business.

Sadly, doing business in America has become a scary affair. There is a great deal of merit to shopping locally where you can do business face to face with a handshake. I really want to find a way to support small business on the internet, but it is hard to separate the legit companies from the things that the scammers belch up.

Friday, October 23, 2009

Congress Paid In Full

Open Secrets (aka, The Center for Responsible Politics) and the Sunlight Foundation are publishing information on campaign donations received by health care lobbyists. There data seems to show that the politicians supporting the current round of health care reform are in fact the ones receiving the biggest donations.

This is counter to the talking point that the tea party patriots were paid in full by the health care lobby.

Not surprisingly, the donations heavily favor Democrats. The recipient of the most most lobbying cash was, not surprisingly, Democrat Max Baucus. Of course, there was a number of Republicans receiving big donations including Pennsylvania Senator Arlen Specter and Senate Minority Leader Mitch McConnell.

Big medicine has always favored big government intervention in medicine, in reciprocation, big government consistently rewards big medicine with big programs that systematically drive wedges between patients and their doctors. My last post pointed out that the health care reform effort failed to address the monopoly status granted to HMOs until after a group of healthcare lobbyists made a peep against a provision in the Baucus bill.

The health care reform bill before Congress did not start with a frank discussion about what is good and bad in our healthcare industry, it has, from the start, been a purely political effort with politicians rewarding friends and punishing enemies.

My experience with local health care reform is that the efforts sysmtematically support big medicine at the cost of doctors and patients.

For example, Sermo points out that the American Medical Association (AMA) makes more money from its monopoly control of the Current Procedure Terminology (CPT) codes used in medical billing than it does from membership dues. Sean Hannity claimed the figures were in the hundreds of millions.

As insurance companies and HMOs set their re-insurance rates based on recommendations of the CPT, this set of codes essentially lays the foundation for wage and price controls in the medical world and is a primary reason for the break down in the pricing mechanism in the medical industry. Medicaid and the Insurance industry base re-imbursement on the CPT, and not the negotiation between patient and doctor.

The American Spectator claims the CPT to be the primary reason for the AMA's collaboration with the health care reform effort. It also shows that this reform is driven by power politics and is not being driven by the fundamental needs of the medical industry. Health care reform is being driven by a technocratic vision of health care being about codes flying back and forth between computers. Real reform would start with the realization that health is an attribute of biological beings, and would focus on enhancing human to human interactions.

The current health care reform effort has, from beginning to end, been a lobbyist driven effort to enforce a technocratic vision of health. The effort did not begin with any serious examination of the nature of health care. As such it is poised to simply continue the centralization process in health care at the cost of our individual liberties and at the cost of our real health.

As the current reform effort is fundamentally flawed, the best thing that could happen would be for it to implode, after which an authentic reform effort could start.

Below is a video sourcing the cash flowing into the hands of Senator Max Baucus and the army of lobbyists who wrote the Baucus health care reform bill.

Thursday, October 22, 2009

Monopoly Status of Health Management Organizations

I am happy that the Democrats have decided to go after the monopoly status of Health Management Companies. The current system allows these massive firms to engage in anti-market activities (like price fixing) to maintain and grow their market share.

The anti-trust movement is the first thing in the health care debate that I believe could lead to a better health care system.

As you see, the trust status of HMOs break the pricing mechanism. The broken pricing mechanism means that a person paying cash for medical services often pays three times more for the service than the HMO. They are often paying ten times the maginal cost of the service.

It is the trust status of the HMOs and not the inherent weakness of the Free Market that has created the dynamic where people are denied access to care.

I could insert a discussion on the difference between the free market and capitalism here ... instead, I want to address a puzzling issue.

The puzzling issue is that this attack against health monopolies happened in the 11th hour of the debate and as a reaction to the insurance industry's publishing a scathing critique of the Baucus bill.

The bills prior to this time were carefully tip-toeing around the trust status.

The modern progressive is not opposed to monopolies. The Marxian model essentially has companies form into monopolies, when this process is complete, a revolutionary change movement will flank the monopolies and role them up into state owned enterprises.

A few decades ago, when I was in health care, the progressives were the ones actively encouranging the development of the massive Health Maintenance Organization that dominates the medical landscape today. In other words, the people who are trying to change the horrid health monopolies of day are of the same ilk as the ones who built it.

This eleventh hour attack on the trust status of HMOs is quite interesting.

It really appears as if the administration is falling into the bunker mantality where in they have defined enemies and friends and are devising their health care system around the base notion that it should reward friends and punish enemies.

This game of having friends and enemies appears to be the nature of man. Throughout the whole of Western history one finds political leaders rallying the folks against perceived enemies. The wicked discrepency in income is often traced directly to actions taken by a government that set aside one group as friends and another as the enemy.

As I watch the health care disaster unfold, my poor little brain reels with the question .... why would anyone want their health care resources controlled by the political class that will seek to redistribute care from the enemies list to the friends list?

To end this post, I found a great example of projection below:

Saturday, October 17, 2009

Tragedy of the Commons

One of the primary reasons that I think the current health care proposals before Congress will result in neither cost reductions nor improved care is that the debate has skillfully skirted debate about the nature of care, nor has it explored the fundamental reasons for the ongoing price increases in health care.

Yes, occasionally doctors will appear next to the podium as props. The use of doctors as props is not a substantive exploration of medicine.

On the cost side of the equation, one rarely hears talk of the driving force behind unbridled price increases. For example, one might expect references to Hardin's "The tragedy of the commons."

The tragedy of the commons is that self-interested people (and groups) tend to abuse common resources despite the fact that such abuse is against the one's long term interests.

The term derives from the observation that if a community attempted to provide a common field for grazing, farmers with access to the commons will tend to over use the commons until it is trammeled. Even worse, they will then start underbidding eachother on the price of the products produced by grazing on the commons ... destroying the pricing mechanism and further undermining their long term interest.

The insurance paradigm attempts to regulate unpredictible health care expenses by creating a group pool.

The logic of the insurer is as follows: Medical expenses are unpredictible. To make the expenses regular, one creates a commons into which people pay a calculated premium and withdraw funds as needed.

Once the commons is in existence, self-interested people and groups will try to find ways to exploit the commons.

This exploitation makes the behavior of the commons itself unpredictible ... effectively requiring additional layers of regulation.

The attempt to regulate unpredictible health expenses through the creation of a commons creates an unpredictible commons.

It is easy to get drawn into the unending cycle of creating new regulations to counter the faults of the previous regulations.

A better approach, however, is to look back at the basics and accept that, a system full of rational self-interested beings, is not a good fit for the same regulatory measures that might work in a plumbing system.

As processing capacity is not a primary constraint, one is better off creating a health care funding model wherein the individual owns their own health care resources.

Replacing the commons created by insurance with a Medical Savings and Loan, one reigns in the commons and restores the pricing mechanisms broken by the commons model.

Insurance as a Natural Monopoly

In a comment, RD brought forth an extremely odd notion. He apparently learned in school that Health Care is a natural monopoly.

When I was working in insurance (before the managed care industry) the sentiment was the exact opposite. The belief then was it was entirely too easy for people to start ibnsurance firms.

Insurance is not like other industries. In most industries one invests capital to create a product then sell the product. In insurance one collects money for future expenses. So, you get the money upfront then spend it later.

Young insurance companies tend to be flush with cash and very irresponsible. They would collapse when the expenses hit.

Regulators spend a great deal of effort throwing up road blocks to stop the formation of new unprincipled insurance companies.

Since the money comes in before the expenses, it takes surprisingly little capital to start an insurance pool. The problem is in calculating future liabilities.

Since insurance does not involve the upfront capital of businesses like the railroad, the buyer's co-operative is actually a better model for an insurance compan than the standard corporate model.

The early insurance market was dominated by small unprincipled upstarts. The fact that insurance today is dominated by monopolies is really a sign of regulation run amok.

In other words, the regulatory agencies in state governments have been captured by the industry. The monopolies are a direct result of the captured regulators.

If the 2009 Health Care debate was about breaking the corrupt regulatory agencies, we would have a completely different beast. However, it is simply about adding another layer of corrupt captured regulators sitting between patients and their doctors.

Insurance is not a natural monopoly. It is the captured regulatory regime that creates the monopolistic tendencies.

The Medical Savings and Loan and Regulation

I guess I should add an end note. Unprincipled young insurance companies fail to retain adequate reserves for expenses and fail. This creates the need for regulation. The regulatory system is routinely captured and creates insurance monopolies.

The Medical Savings and Loan does not hold funds in a liability pool. It simply aids individuals in saving. The reserves for the loans are owned by the savings accounts. As this structure is not dependent on a pool, it does not have the temptation to burn through liability reserve. This reduces (if not eliminates) the need for regulation ... breaking the need for regulation and the monopoly resulting from regulation.

Like insurance of old, the Medical Savings and Loan is better suited for the co-oop business model than the corporate model.

Wednesday, October 14, 2009

Insurance Exists to Regulate Expenses

I've said in numerous posts that I dislike thesis/antithesis conflict promoted by the press between "regulation" and "deregulation."

These Hegelian style conflicts work well in political campaigns, but do not help people solve problems.

In public debate, the term "regulation" usually goes undefined. In some quarters, people use the term to apply to laws. Laws are often called regulation. Others use the term saying that there needs to be a ruling class with arbitrary powers to rule over an industry. I came across another interesting definition of regulation which is as follows:

Regulation means "to make regular." Wiktionary gives the definition of regular: 1.With constant frequency or pattern. 2.(mostly US) Normal; ordinary 3.Obeying rules.

So, the goal of regulation is to take something that is bumpy and unpredictable (like health care expenses) and make it behave in a normal fashion.

Insurance works by having everyone pool their resources with the goal of paying for unpredictable medical expenses.

The goal of health insurance is to make medical expenses regular.

Health Insurance exists to regulate medical expenses.

The industry was created by the regulatory mindset. The history of employer-based insurance is a long and involved dance of political leaders and insurance companies to create an instrument to regulate the health care expenses of the population.

It is true that many pundits have argued for employer-based insurance as a free market alternative to socialized medicine. However, from its very inception, the industry has been and continues to be a product of the regulatory mindset.

The regulatory mindset seeks to contain and control unpredictable expenses. The free market mindset, on the other hand, handles unexpected expenses by having people save in times of health and spend in times of need.

[The Medical Savings and Loan adds a lending component to a health savings account to assure that people have sufficient resources to handle truly unexpected expenses.]

Insurance was the creation of the regulatory mindset. All 50 states have sizable insurance regulatory functions. Since insurance was the creation of the regulatory mindset, the leaders in the insurance tend to embrace and work closely with the state regulation.

The criticism that the failures of a product of the regulatory mindset is the failure of the free market and a sign that we need more regulation is absurd.

If we don't like employer based health insurance, then we should take a free market path like the Medical Savings and Loan.

Sunday, October 11, 2009

Health Care at a Human Level

Readers of HR3200 realized that it was a deeply flawed document. The Baucus Bill has so far shown itself to be politics at its worst.

Health care is just too important for individual people to be controlled at a Federal level. Your health is an attribute of you. In an ideal world, the resources for the care of your health would be near you and under your control. Your health care resources should not be in Washington, under the control of an unelected bureaucrat.

Employer based health care is bad. Washington controlled health care is worse.

Anyway, all fifty states and local communities are flush with unique efforts to engage in health care.

Since the national debate is really ugly, one way to get our nation off the path of the health care power grab would be for people to spend time talking about local state and community efforts that are affecting health.

I've had first hand accounts with efforts on the county and state level that actually did make a positive impact on people lives. Each of the efforts that I've personally encountered started with the recognition of real people with real needs and not some theorizing by a pencilneck in an ivory tower.

I just read an article by Wilson Ring about programs in Vermont to engage in handling chronic illnesses.

You will notice that this health care reform starts with patients and doctors while the bills in Washington are about ideology and partisan maneuvering.

The pundits on TV keep threatening that the Senate will sneak through the health care disaster in procedure. Perhaps talk about the good things done at the state and local level might jingle some brain cells in Washington and remind us that health is about people. The resources need to be close to the people.

Perhaps if people talked about the good things done locally, some might catch onto the fact that the health care reform of 2009 is both Unconstitional and diametically opposed to the vision of the founders of this nation.

There is a good reason why the founders wrote Amendment 10 "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

Central authorities will always grub for maximum power, yet the really important issues, like health care, happen at an individual level and the resources for health care need to be local.

I would love to get some links to stories of real human level efforts to improve health. Please drop a comment.

Friday, October 09, 2009

Partisanship and Peace

I sincerely believe that the American Presidency should strive to be a force for peace in the world.

The awarding of a Nobel Peace Prize to an American president is a great honor. I had even been hoping that President Obama would earn the prize through years of service.

Today's announcement of a Nobel Peace Prize through me for a complete loop. The voting for the 2009 prize took place just weeks into Obama's presidency, which implies the prize was awarded for partisan reasons and not for accomplishments.

Partisanship is a primary cause of conflict and war. Excessive partisanship in the awarding the prize undermines the prize.

We live in a day when politicians are flush with good intent, but intention often run a foul of reality. One must take time to see how well the intentions are panning through.

The sources I read claim the vote for the prize came within the first weeks of the administration. There was not enough time to know if Obama's campaign promises were promises to keep or promises to compromise.

Looking through history, one finds a long list of solid attempts at creating an era of peace that failed. Mistimed peace efforts often cause or extend wars. I applaud peace efforts but realize that such efforts are dependent on timing. Thanks to the surge, the United States is in a better position to remove troops from Iraq. Had we taken the same action a year ago, there would have been a blood bath.

There is great merit to the carrot and stick approach that Obama has been taking with Afghanistan. Avoiding a hasty pull out from Iraq was also wise along with the back peddling on Guantanimo Bay. These issues have gone opposite of campaign promises and early administration intentions. Some peace advocates could claim Obama's administration is George Bush-lite.

I believe that the compromises Obama has made have been for the good of the world, yet there needed to be a year invested in the effort before judging its success.

The rewarding of the prize too early in Obama's career comes off as a partisan jab. The mistiming of the prize has the double negative affect of widening partisan divides and it diminishes the meaning of the prize for the recipient who is positioned help advance peace in the world and, God-willing, will be a catalyst for peace.

Tuesday, October 06, 2009

Institutions Impoverish

I find it troubling that, in our day of advanced communication and technological proficiency, that there are many areas that suffer intractable poverty. For this reason, I am looking forward to the PBS Special the The Power of the Poor scheduled to air October 8th at 10PM EST. Check your local listings. This special features the work of economist Hernando de Soto who contends that impoverished areas contain immense wealth. The problem is that the political and legal systems lack the ability for people in the area to realize the benefits of their wealth.

In the lead up to this program, the Free to Choose Network is sponsoring a blog contest asking people to answer the following question:

“What institutions can enable the world’s poor to realize their power
and achieve prosperity?”

Truthfully, I find the question troubling as I have gradually come to see "institutions" as the source of entrenched poverty. For example, the institution slavery held African Americans in abject poverty for centuries. After emancipation, the political class constructed the institution of Jim Crow laws to continue the oppression.

Many institutions have a form which concentrates benefits on an inside group while externalizing costs on outsiders. This can happen in extremely subtle ways. For example, a successful school might create a structure where its graduates hold positions of power. The graduates instinctive discriminate against outsiders based on the mannerisms that they learned in the school.

In the area of regulation, one finds that the writers of the regulations have inside knowledge which they use for their benefit and the exclusion of competitors.

Charitable Organizations often make the mistake of attempting to impose the institutions that benefited the founders of the charity on an impoverished area. Such imposed institutions can create entrenched poverty by concentrating benefits on a few at the cost of the many.

For example, well meaning efforts to extend property rights in colonial days created a landowning class and an impoverished tenant class.

Institutions are not inherently evil. Institutions create benefits for some, and costs for others. By understanding the nature of institution one realizes that the internal make up of a group is less important than the relation between the community at large and its constituent institutions.

In this last decade, I have been engaged in the Community Color project. This project involves a detailed examination of organizations in select communities of the American Mountain West.

What astounded me was the diversity of organizations that exist within each of the studied communities. This leads directly to the conclusion that a strong community has people engaged in numerous efforts that provide benefits at different levels.

Rich societies have a complex relation with institutions. This relation allows multiple groups to exist with the community. This multiplicity can help societies created by efforts that concentrate benefits on some at the cost of the many. So, an institution might concentrate benefits on a group. Those excluded would counter by creating a competing institution.

In a rich society, there is an ongoing influx of new organizations. Old organizations often diminish with time and disappear. It is this process of institutions evolving within the community that creates the wealth of the people.

Attempts to impose institutions on a society often destroy the natural evolutionary process within a society. The imposition of institutions creates a world of haves and have-nots. The answer to poverty is an internal change to a given organization but an overall change in the relation of the community that allows the evolution of diverse constituent institutions.

Monday, October 05, 2009

Speculation v. Leveraging

Yesterday, I sat through a Book TV program in which a half witted progressive projected all of the wrongs of the world onto his partisan enemies. The tenured professor of progressive propaganda had an acute hatred of speculators.

I really dislike the progressive game where the elite identify a group that the brownshirts are to hate and struggle against.

I prefer a more balanced approach that observes what people are doing coupled with an analysis of those things that lead to positive results and those things that lead to naught.

I believe that speculators can do a great deal of good. For example, people speculating on corn futures might buy a crop at the beginning of the season. This allows the farmer to concentrate on the farming.

Speculators in the stock market provide valuable pricing information. This pricing information helps people decide how to invest resources. Back to the farming expample. If speculators are expecting a shortage of soy beans and an excess of corn, the future price for corn would be low, and the price of soy beans high. A wise farmer might switch crops for a year based on this pricing information.

The pricing information helps people make better decisions. The futures not only helped the farmer avoid risk of a crop failure, selling the crop on the soy market made the farmer more money and help keep the tofu shakes flowing.

There is a good side of speculation.

In 2008, we saw the speculative markets were out of whack with reality. So, clearly there was something in the waters that disrupted the speculative markets and caused a horrific imbalance.

I contend that this force is leveraging. Leveraging happens when an investor borrows against one equity to invest in another.

Leveraging can dramatically increase profits from an investment. If I had 1000 shares of stock and leveraged that equity to buy another 1000 shares, I would have 2000 shares. If the stock doubled in price, I would have all sorts of money. Of course, if the stock fell, I would be in deep hurt as I would have to find a way to pay back the money I borrowed.

Since every purchase and every sale of an equity affects the equity, one finds that leveraged speculative buys and sells have a leveraged effect. The leveraged effect effectively creates false information. Highly leveraged positions create systemic faults. For example, during the market crash of 2008, speculators were forced to liquidate their leveraged positions. This accelerated and deepened the crash.

While speculation provides valuable information, speculation appears to provide false information.

Unfortunately, one of the primary tools of speculation is a thing called a short sale. To sell short, a speculator borrows and equity then sells it.

The very first step of the process is the borrowing of the equity. This borrowing of the equity makes short selling an inherently leveraged position. Taking a $10,000 short position in a company involves borrowing $10,000 in shares from other investors then selling those shares. This borrowing of shares is a leveraged position.

Many of the put and get options on the market are backed by short sales in the stock. If I borrowed money to buy a get option, I would actually have created a double leveraged scenario with the broker shorting the stock to create the derivative and my borrowing to buy the derivative.

The hedgefund industry will bundle highly leveraged positions and sell the leveraged positions as equity. This equity in turn is shorted and borrowed against.

This process of ever greater leveraging creates a greater and greater separation between speculative plays and the real value of the underlying equities. The end result is a situation like 2008 where the underlying equity in the market appeared sound, but our hedgefunds, insurance companies and banks had internally created an instable house of cards.

Speculation is not inherently evil. When combined with leveraging, speculation creates systemic risk.

We could reduce systemic risks by reducing the extent to which speculators leverage their holdings.

This appears, at first, to be a call for greater regulation. However, I would point out that most of leveraging tools on the market are creation of regulators.

For example, widespread short selling exists because the sales are not recognized as loans. Would you lend your shares to a speculator if you shared the risk of the speculation? The short selling industry depends on selling shares without the full knowledge of the share owners. Much of the institutionalized short selling happens because of artificial gaps in transactions created by clearinghouses.

The question of regulation v. deregulation is a moot point as pretty much all of the leveraging tools are tools created by regulations.

Tools that closed the gaps on leveraging would have the same effect as greater direct control by regulators.

A Single Payer System Ruled by Social Justice

I read a sob story about a parent whose child had hemophilia. The article told how an evil insurance company had been paying out $750,000 a year, but had been raising rates on everyone, causing hardships for the companies holding the insurance. Even worse, the parents were rapidly approaching the six million dollar maximum payout of the policy.

The article ended with the suggestion that single payer system ruled by social justice would magically solve the problem of diseases that consume all the available resources of a community.

The left appears to be afflicted with a blind faith that the moment everyone is forced into a single pool, a bunch of money would magically appear and that money would cure death and make the world smell of roses.

Now the one great drawback of the Medical Savings and Loan is that it is incapable of handling medical bills in the millions.

The system simply gives people direct control of their resources. On a whole, giving people direct control over their resources would have people living longer, healthier lives. The system would create a paradigm where life expectancy increased and the quality of life would improve dramatically.

The system would fall flat in handling a $10 million dollar childhood disease.

My plans set an upper limit on the loan amounts and had people buying catastrophic insurance. Unfortunately, such catastrophic insurance is ridiculously expensive.

To tell you the truth, if I had a problem that entailed a million dollar bucks in medical expenses, I would refuse the care. I would refuse the care even if I had the million dollars in the bank. I would rather have the money go to something worthwhile … like scholarships, mosquito nets in third world countries or a donation to an art gallery.

Anyway, I had been sitting here feeling like the evil caricature that Representative Alan Grayson warned you about … you know the evil Republican who would rather see the kid die than spend the $10 million or so needed to keep the kid alive.

So, I had been in the funk for most of the weekend until I started watching a progressive on Book TV ranting about social justice. It was just your standard rant about how 10% of the people on the planet seem to be consuming 90% of the resources.

I've been in a funk because neither insurance nor a medical savings and loan is able to handle multimillion dollar childhood diseases.

However, it struck me that a single payer system ruled by social justice wouldn't cover such an ailment either.

The multimillion dollar cases where five percent of the patients consume 95 percent of the health resources would be declared socially unjust.

Despite the slogan "from each according to their ability and to each according to their needs," the socialist system which is supposed to provide perfect care for all catastrophic and chronic conditions is not going to do so. Any parent demanding such state of the care would be barked into submission and struggled against as bourgeoisie.

The free market is unable to provide state or the art care for all patients because such is not a best use of resources.

A single payer system ruled by social justice would make similar rationing decisions.

The only difference between the systems is that the free market provides better care for more people than a socialist system, but that socialism silences dissent, so no-one hears of the suffering.

Socialism lacks internal consistency. Claims that socialized medicine would provide state of the art care to all directly violates the concept of social justice which lambasts anyone who consumes more than their fair share of the resources.

Saturday, October 03, 2009

Squeezing the Lemon, and coming up short

Blogging Stocks notes that there was 38.2 million Failure To Delivers (naked shorts) in the collapse of Lehman Brothers.

This whole concept of capitalism is premised on the idea that companies could use their capital for re-investment. The regulations that allow naked short selling create a feedback loop where power-brokers seeking a quick buck can launch a naked short attack against any firm that has leveraged its capital.

A naked short attack launched on a company with leveraged stock magnifies the hurt of a down quarter and can throw even the largest companies into insolvency.

It is important to remember that naked short selling exists because regulations within stock clearinghouses. Clearinghouses justify the regulations claiming that naked short selling assures liquidity.

I mention this as Blogging Stocks supports Barney Frank's solution. Barney Frank wishes to force all stock transactions through clearinghouses.

We need transparency for each and every trade done by each and every financial institution. That means that all trades must be done on a listed exchange and cleared through a clearinghouse.

As it is the regulations in the clearinghouses that cause the problem, my mind had fallen on the exact opposite solution.

Companies and investors wishing to protect themselves from the corruption of the clearinghouses would be wise to pull sizable chunks stock from the clearinghouses and trade directly.

Trading shares in real time closes the artificial gaps in the trade where naked short selling occurs.

A real time trade is like a transaction at the grocery store. The groceries become yours when you hand the clerk your cash.

I could understand a requirement forbidding short sells outside a clearinghouse. A person trying to sell stocks that don't exist should be recognized as a counterfeiter. Investors should be allowed to take legal action and sue brokers that sell counterfeit stocks.

In conclusion: The massive naked short attack which deepened the fall of Lehman Brothers is a great example of the way that short selling (a contrivance of regulators) is anti-market. The solution is for investors to demand that they receive the shares they purchase. If the clearinghouses are captured then investors need to pull their stock from the clearinghouses.

The black box clearinghouse system appears to have created a structure open to capture. Barney Frank's demand that we give a broken clearinghouse system absolute power seems absurd.

Olympic Sorrows

I am sad that President Obama and the US Olympic Committee did not win the bid for Chicago.

Being cut in the first round was particularly harsh.

Since there has not been a game in South America, I am pleased to see Rio winning the bid. The last decade has seen a major leap in prosperity of the emerging markets. So, I think it is fitting that Brazil gets a moment to shine.

Were it up to me, I would have voted for Rio.

The one and only reason that I feel sad today is that the President of the United States lent the full clout of his office to the bid; So, I was sad to see the effort fail.

Perhaps the real reason that I feel sad about losing the bid is that invoking the star power of the presidency set the Olympic bid as a major failure.

Traditionally, cities would run multiple bids before winning a game. This was Brazil's fourth bid for the game.

The United States has had recent summer games in Los Angeles and Atlanta along with several winter games. I was not expecting to see another US Olympics before 2020. That many people saw Chicago as a front runner in its first bid for the Olympics seems strange to me.

That our president set himself up in such a way that losing the bid would be read a political failure for himself and the United States also seems strange.

I am sad, but it's a puzzled sorrow.

Thursday, October 01, 2009

Medical Savings and Loans in the ER

One of the biggest hurdles of health care reform is that forcing people to buy insurance is Unconstitutional. Car insurance requirements flow from the licensing procedure. This game of making health insurance mandatory is a purchase that you are required to make for the act of existing.

One can implement a "universal" Medical Savings and Loan by creating a loan reserve with universal access. The catch is that taking a loan throws the person borrowing the money into a forced savings plan.

So, if someone shows up at the ER and doesn't have the cash to pay for service, they they would be immediately enrolled in the savings plan. The person showing up at the ER would required to pay back both the loan and put money in health savings.

So, lets say I showed up at the ER and had a bill of $10k. I might be required to repay $20k ... with $10k going toward the loan and $10k going into savings.

The repayment schedule would be capped at a percentage of income. So, lets say I can only repay $16k. In this scenario I would end up paying back $8k to the ER and have $8k in savings ... this is a $2k subsidy for my initial visit (better than a $10k subsidy). I also have $8k for other health expenses.

Needless to say, a person in a medical savings and loan would be able to take out additional loans as deemed necessary.

A government run medical savings and loan would skirt the constitutional problems of forcing people to buy insurance. Joining the program is a condition of the loan is is not something forced on a person for the act of existing.

There is nothing to prevent an ER from enrolling non-US citizens in the loan program.

As it is silly for people to seek primary care in the ER, it would make a lot of sense for non-profit clinics to have the ability to make loans and enroll people in a universal medical savings and loan.

The program does not magically create a dynamic where sick people are able to afford all of their care. It does, however, create a structure where they pay a greater percent of the care they receive. The funding for the medical savings and loan, of course, could come from the money currently granted for funding care to those in need. As people seeking assistence would be paying more for their care, the medical savings and loan provides a mechanism that help stretch out these dollars currently in the system.