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Orange Opinion . Artificial
Professions Hurt Economy:
Stupid Americans vs Smart Mexicans Tuesday Jamuary 17, 2012 |
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| Down
Mexico way, you can buy most antibiotics, painkillers, and other
medicines WITHOUT a prescription. In Canada, you can at least buy
acetaminophen WITH CODEINE
without a scrip. So I guess our laws are saying that Canadians and
Mexicans are smart, and Americans are just plain stupid, lazy, and
shiftless, and don't have brains enough to read directions. Before you can get a medicine for a condition you already understand and for which you got a previous prescription, you first need a nanny to do all of the following: talk to you for two minutes, then have a nurse take your blood pressure, then send you for tests you had before and, $400 later, tah-dah, here's your prescription. This kind of medicine is what I call an "Artificial Profession", created by legislative fiat to make sure MDs and DOs can keep making boo-coo cash. It also |
ensures that insurance companies can
keep justifying their high rates. I despise the system and it's part of
the reason I retired from medicine a few years ago. Oh, yeah- the DVMs are in on it too. Just try ordering an antibiotic (even online) for your cat: "We'll be glad to ship as soon as you send us a scrip from your vet." Asinine. Really asiniine. Like you haven't been through this same problem with your cat before? Like you don't know what they're going to prescribe all over again? Another bit of asinine legislation covers pest control. You can read label directions and safety precautions as well as television's idiot Dale, on King of the Hill (I hope), but you can't get your hands on termite poison because you're not a "licensed" pest controller like Dale. Asinine. Really asinine. |
The
obvious effect of these Artificial Professions
is to raise healthcare (and pest control) costs for no obvious benefit.
You end up with people seeing a doctor for $400 in tests and
monkeybusiness when a $20 otc prescription would've done the job,
except you can't get it otc. There are other Artificial Professions doing a lot of economic wreckage but you get picture. Makes ya wanna slap somebody, don't it? Yes, some drugs need to be restricted, but not that many. Our problem is that we're just too lazy or stupid to read directions, or so our regulators tell us. Any questions? (I may publish your comment without your email address, but with editing for length and content) ~DS Hudson |
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Orange Opinion . The
Economy:
Has Statehood Run Its Course? Saturday Jamuary 14, 2012 |
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| Now I
know this is sensitive, BUT...in pure economic terms, is it maybe
time to become more of a nation
and less of a loose collection
of feudal, bickering states with individual powers? This relates not only to the healthcare
piece below, but has much broader
implications, like criminal and civil
law, custody battles, overall cost of government, taxation, regulation,
commercial
vehicle licensure, and licensure of professions ranging from financial
advisors to cosmetologists. First, in support of state sovereignty, part of the early design of the USA was to prevent the concentration of power in the hands of a "king" or its equivalent, such as a president or congress. After all, the whole point of the American Revolution was to kick the English king's butt, right? So to prevent anything remotely like that oppression from happening again, we diluted power by giving a lot of it to states, along with some other dilution measures like separation of powers and authorizing "well-armed militia(s)". We'd been through a lot at that point, so dilution of power made a lot of sense. But times change, don't they? So, should we change with the times? Now, before you go off yelling about "states' rights", just consider the present form and how its problems directly affect you. Any product you buy is likely regulated by at least three governments: the state it was made in, the state you live in, and the feds. This means the manufacturer must satisfy sometimes conflicting labeling, transport, and production regulations from all three. That's a lot of bureacracy and it costs money. This cost is passed on to you, the consumer of that product. Are you a hairdresser? Pest controller? Tattoo artist? Teacher? Nurse? Dental tech? What happens if you decide to move, or if your spouse gets a great job offer in another state? You might not be able to work in the new state until you go through a lot of extra hoops to meet your new state's requirements, assuming they even license your profession or allow it to operate. If you invent a product, you might not be able to sell it into other states until you meet all their regulatory |
requirements- that's 50 different
states, including your own. Litigation is expensive and uncertain. Whether you're having to sue an out-of-state company or being sued by someone out-of-state, there may be a big fight about whether the suit should be under the laws of the state where the events or transaction took place, or where the product was made, or where you live or where they live, or federal (and which district). Expensive, expensive! Truck drivers will tell you that just before they cross into certain states, they have to stop and adjust their loads by moving axles around, just to accomodate those states' weird requirements. This is time and money that gets passed on to you the consumer. Ridiculous. Criminal stuff. Extradition of criminals from one state to another costs money, in tax dollars. What's a crime in one state might not as clearly be a crime in another. Big legal fight. Also, cooperation among state and federal law enforcement agencies is not the best when it comes to data sharing. Taxes, taxes. Okay, would you rather pay for one layer of government or two? Two legislatures or one? Two EPAs or one? Two court systems or one? Two sets of buildings and land to house those offices or less? Remember, bureaucracies have a lot of fat. Fewer bureaucracies means less fat and lower taxes. Porkbarrels, influence, and corruption. The best connected get the best connections- to federal money. How is that fair? A rich state with a lot of clout gets more money than your state. You like this system? Alright, let's go back to "states' rights". This (be honest) is a code-phrase for a state's supposed right to racially discriminate. Be honest again: even if you like this disgusting idea, it went down in flames a long time ago. So, if you're stuck on this idea as some kind of symbolic protest, you might want to find a cheaper one, tax-wise. |
Here's one that's about to hit us all in
the head- again. Voting and elections.
Our current elections model is based on state "electoral college"
representatives, not the popular vote. No states, no more electoral
college, and we go to a popular vote system. I guarantee that this time
around you're going to hear more screaming about this than ever before. We face global economic competition. Does it make any sense to hamstring ourselves from doing business with ourselves? Do we really want to keep paying for a mindless state bureaucracy that's just 'in the way' of economic progress? Silly. Collecting taxes. Okay, a completely federalized system will still need tax money to operate, though not as much as the present combined state and federal system. That's worrisome but the remedy has to do with the directional flow of taxes. Right now, we pay to the fed and the fed decides how much to give back to the states. We should reverse the flow. First, we should keep our city, county, and village governments. Collect taxes at this local level, use what's needed locally for projects and services, and send only what's left over to the fed. This controls federal spending. Of course, some standards would have to be developed (would take years, but worth it). For example, say every county is allowed to use up to 65% of collected taxes. That local elected government could use it any way they wish. The feds would be responsible for water treatment, education, and law enforcement. These are just examples and there are surely better models, including some which adjust for gross dollar levels from place to place. Finally, for those who would instead abolish the federal government, beware what you ask for. Bickering states can't even agree on water rights, let alone on how to maintain a national military to defend us from attack. Any questions? (I may publish your comment without your email address, but with editing for length and content) ~DS Hudson Addendum. Now here's a thought! We don't have to wait for a constitutional change to solve the problem. States which are in economic trouble, which is probably true of most states, could simply default, declare bankruptcy, cede their powers back to the fed, and the fed would be forced to direct money into them. |
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Orange Opinion . Healthcare:
NOT a Free Market
Wednesday Jamuary 11, 2012 |
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| The
healthcare debate is about to heat up again. I don't want to
take sides on this concerning the controversial healthcare bill.
Rather, I want to point out an important element missing from the
public debate. This element could change everyone's perspective. The fact is, the current healthcare economy is NOT based on free-market principles. Instead, it has its roots in state regulation of healthcare professions, a regime guaranteed to create harmful monopolies. Breaking up these monopolies will make healthcare affordable again. First, the facts. Wherever you live in the USA, any healthcare provider you see is regulated by state law, which varies from state to state, but which is ostensibly designed to protect you from incompetent providers. Those providers have to meet the licensure standards of that state in order to practice. Each profession strongly lobbies state legislators to protect their turf in order to limit the number of new practitioners and thus keep fees high for their practitioners. So new laws and rules keep getting enacted to steadily raise the bar to entry. Those lobbyists are happily joined by education lobbyists because the stiffer the requirements, the more education is required. Hence, the education industry makes more money, whether it's in core education or "continuing ed" requirements. And, believe it or not, the insurance companies love it! After all, the more healthcare costs, the more the insurers can justify charging for insurance. So their lobbyists weigh in, supporting stiffer requirements (and the resulting higher healthcare fees). |
By now
you get the picture. A "free market" is where anybody can sell onions on a
streetcorner. A "managed market" is where regulation controls who can
sell what where. I'm not against reasonable regulation of healthcare professions. It's a good idea. But lobbyist-driven, self-serving regulation is a different matter. It's very damaging to the economy and to the public health. Case in point: Dentistry. And I'm not picking on dentists- this nonsense is true of all healthcare professions (I'm a retired doc, so trust me on this). But this dentistry example is just too clear to pass up. What happened was that a few years ago an Alaska Indian nation, seeing that its people in remote areas were suffering due to lack of dentists in the area, decided to adopt a New Zealand model for training dental care providers, or "assistants". With just two years' training, they'd be able to do fillings and "uncomplicated" extractions. In 2006 the American Dental Association (ADA) objected and filed suit to block it, which shows just how arrogant healthcare lobbyists can be, since Indian nations are literally sovereign governments in their own right and can do whatever they want, just like a state government, only more so. The ADA lost the suit, of course. But it shows that healthcare lobbyists don't really care about protecting the public health- all they care about is protecting their practitioners' pocket books. The ADA knew the New Zealand model worked (as also proven in Alaska in recent years), was safe, and contributed greatly to improvement in the public health. But they sued anyway. |
Another
example? Back in the late 1980s, while I was practicing in
Michigan, a group of acupuncturists tried to get a bill passed to
license them to practice. The usual medical suspects tried to block the
bill. One of these, representing osteopathic physicians and surgeons,
offered the legislature a stunning argument something like this: "We've
already got too many medical providers and adding more will hurt our
income." Amazing honesty- and the Michigan legislature bought it and
defeated the bill. More food for thought. So you think a surgeon has to be trained for 10 years to be competent? And so they're entitled to $20,000 per surgery? In sub-Saharan Africa, NPCs (non-physician clinicians), with minimal training, perform many highly invasive surgeries with excellent outcomes. See this link. When was the last time you priced getting a dental implant? One tooth, about $1800. A mouthfull of teeth, about $20,000-30,000. Dentures: $3,000-6000. You may think you're too young to worry about it, but time passes quickly. And the reason for such outrageous prices is that medicine is NOT a free-market economy. The only way to change it is to open up these fields with less time and cost of training. Any questions? (I may publish your comment without your email address, but with editing for length and content) ~DS Hudson |
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Orange Opinion . A
New WPA: Government Ownership of Power and Communications
Thursday Jamuary 5, 2012 |
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| You
may not like this idea- at first- but think it over awhile and
it kinda grows on you. I'd like to approach it Socratically via a brief
Q&A so you at least see the reasoning clearly, even if you don't
agree with the conclusions. Where and how are most of the people getting screwed most of the time and, besides housing costs, where is much of the money going that people earn? Answer: In no particular order: internet, phone, heating, lighting, and gasoline. Are the bills for these items reasonably related to the costs of providing them? Answer: No. Each is super-inflated. Internet service, heat, and light are super-inflated due to a monopoly of one kind or another. Gasoline is super-inflated due to national and global collusion to fix prices. What would be the likely effect on the American economy of cheap gasoline, cheap internet, cheap phones, and cheap energy? Answer: An absolute boom, unstoppable on every front. Productivity would go thru the roof; real wages would rise; unemployment would drop to nearly zero; home sales would jump; the dollar would strengthen; energy- intensive manufacturing and metals refining processes would blossom; research would take a quantum leap; and you'd have more time to play with your dog. |
What
would happen if the government nationalized the oil companies? Answer: You don't want to go there. We've got a better idea in "How to Do It". How would state or local government ownership of cheap power affect their fiscal condition? Answer: They'd be rich. They could not only sell their bonds, but sell them at super-low interest rates. They could fund more and better schools and teachers. Better roads, better services overall. I miss anything? How to Do It
Okay, enough questions. Let's talk
about how it could be done.First off, energy. You DO NOT nationalize the oil companies. Here's why: Government- our government- is not competent to manage such enterprises; our government is too politicized to do it, i.e., too many porkbarrel interests; critics would call it "communist"; oil companies would fight like hell to stop it; and finally, the best reason not to do it is that fossil-fuel is a dying paradigm, no matter how "clean" we try to make it. Now at its peak, this paradigm is destined to fail as soon as there's enough alternative energy available. |
So what you do is, you compete
by developing those other energy sources with the speed and financing
that only government can muster. None of this GSE crap like Fannie,
Freddie, and the post office. Outright government ownership- that's the
ticket. A massive project the size of the Manhattan Project that got us
the atom bomb, bigger than the WPA ever was. Put people to work
building those systems- solar, wind, wave, geothermal, cryonucleation.
Full employment for about a decade. Spread the wealth with federal
funding to states, cities, counties, to do the work. Second, communications. Tell the cable companies to take a flying leap. They've breached all their contracts from Day One by not providing the speed, coverage, or cheapness they promised to provide 'way back when. Take 'em over, be done with it. Bring in government internet and phone service. Third, vehicular fuels. Very simple, the electrical infrastructure mentioned above will make electric or hydrogen vehicles a reality. Build the filling and charging stations and collect the money. Government money. Any questions? ~DS Hudson |
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NEWS- Futuresmag.com MFG US/UK Trustees Battle Over $600-700 million in Customer Funds Orange Opinion . English Banking
Hijacks $700 million?
Saturday December 24, 2011 |
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| Below
I wrote about the "London Rathole" of banking and how
re-hypothecations work, aka, "repos". From the Futures Magazine link
above we now get a glimmering of just how toxic it really is. The essence of the story is that England's MF Global trustee is refusing the demand of New York's MF Global trustee for the return of $600-700 million in missing customer funds. Now why should this be? The short answer is that much of that money is probably pledged to cover repos, and returning it would send nasty ripples through their banking system. Again, why? Because that same money has likely been repo'ed many times over, serving as the same collateral for any number of bad bets, perhaps well into many billions of dollars across the English banking system. Sending it back to customers who trusted MFG would cause a string of defaults. The strict legality of these transactions may not be in question, but the general prudence of English |
banking regulation certainly is. In the
area of repos, such regulation seems almost nonexistent, and is a
clever way to siphon off hundreds of billions of dollars every day from
unsuspecting investors worldwide. No, The City, as London's financial
district is called, doesn't actually steal
the money- they just use it
to collateralize their bets.
As long as nothing goes wrong, nobody's the wiser. But when things do go wrong, as they are rapidly
going, it's all those investors who take the hit, instead of The City. I recently opined to a friend that the English had erred in refusing to go along with the tighter banking regs proposed to save the euro, and that it would probably bite them in the Southern Wherewithals before it was all over. He suggested that they were "wise not to get mixed up with countries who refuse to live within their means," as if England does live within its means. But it's now clear that what they really do is live within other people's means. |
Now,
I'm not against repos entirely; they can be very
useful instruments for prime brokers in need of fast cash. But their
use should be strictly limited to the broker's real assets, which do not include
customer assets. In other words, let the high-flying brokers put their own skin in the game, not yours. Until then, you might consider doing a little repo-ing of your own and getting your assets out of the markets. If you even think you saw "rehypothecation" mentioned in any of that fine print you signed, reach out and grab your assets before they disappear down the London Rathole. Think I'm kidding? Just ranting? Tinfoil-hatting? Read this from Bloomberg: "...credit-default swap prices imply a more than 1-in-5 chance of default for Morgan Stanley (MS), Goldman Sachs Group Inc. (GS) and Bank of America Corp. (BAC) in the next five years. That’s up from about 1-in-10 odds at the beginning of July, according to data provider CMA and a standard credit-swaps industry-pricing model." So, how's that buy-and-hold strategy workin' out for ya? DS Hudson |
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Orange
Opinion
U.S. Banks' $1
Trillion Exposure
to European Debt via London Rathole Saturday December 10, 2011 |
a reader service of orangequant.com |
| Or maybe we should title this one "How to Use Other People's Money as
Collateral for a Leveraged Bet." No matter. It has so many
facets that any title implying betting what you don't own would do. But it gets worse than that, far worse.
What's going on is that the same collateral is being used to back bets
by whole strings of bettors. In other words, there really isn't any collateral because if any
bettor in the chain fails to pay up, they all fail to pay up. Okay, let's take this in simple pieces. A Dec. 9 Reuters article by Christopher Elias tells in detail how this happens. The short story- for those of us without economics PhDs- is that financial institutions are allowed to use YOUR assets to collateralize THEIR bets while waiting for you to cover a margin call they've issued. Not only that, but the other financial institutions who accept that collateral are allowed to use it to collateralize THEIR bets, and so on and so on. So your $500 in assets might be out there collateralizing thousands of dollars in leveraged bets, or much more. The whole monkeybusiness is called "re-hypothecation". Well, you'd think there'd be some legal limits on this kind of nonsense- and there are, sort of, in much of the civilized world, at least. In the USA, for example, a prime broker can re-hypothecate "only" a maximum of 140% of your "liability" due to a margin call (Regulation T and SEC Rule 15c3-3). Of course, it's up to your broker to decide when, if, and how big a margin call you're going to get, and by when it's due. So much for the "civilized" world. |
We now come to the "UNcivilized"
world
of London banking, where there
are NO limits on re-hypothecation of any kind. Note also that the UK
is, as of today, the only EU nation to reject the plan to save the
Euro, because it would more tightly regulate their banking industry.
Let's use MF Global as a handy example of letting the wild-West banking
savages of London have their way. When you signed up with MF Global, the fine print declared that MFG could use your assets pretty much any way they liked, including re-hypothecation anywhere in the world. And that's exactly the first thing they did, shunting your assets to their London office to escape and evade USA regulation. Next thing you know, those assets got pledged to somebody else as collateral for one of MFG's wild bets on European bonds. When that bet started south, MFG's risk counterparties began making margin calls on MFG, which MFG couldn't meet, soooo... a big chunk of those "missing" customer funds and assets that should've been safely sequestered ended up leaking away into the hands of the counterparties. As you might imagine, this story is about to get 'waayyy better. As said, MFG is not alone in this UNcollateralized betting scheme. THEIR counterparties were all allowed to use the same assets to leverage up and collateralize their own bets, and so on; in fact, many financial institutions in the "civilized" world |
make
use of
the London Loophole, the Black Hole of high finance. MFG appears to be
Lehman Brothers, but on a global scale. They've all got your assets pledged to somebody else. MFG'S default has nearly triggered a complete rout, temporarily forestalled by Eurozone efforts to contain the contagion. The risk of contagion is also why you've seen the MFG implosion painted as an ordinary ripoff or misuse of customer funds- the dark spirits don't want you to know that the ripoff is so widespread, or so dangerous. It's kind of like the Lehman thing- at first, the little people were led to believe it was an isolated case, nothing to worry about, nothing to see here, folks- let's move along. And then, bang. Now, we've all been told that USA banks have minimal exposure to European debt. But would you like to know how much USA financial institutions really have at risk in this mess? The Bank for International Settlements says it's "only" about $181 billion. But figuring in re-hypothecation and it's closer to $1 trillion at risk. Leverage works, and it can work against you, big time. And who are the crowned princes of re-hypothecation in the USA? On a cumulative basis for 2011, and in order of amounts, it's JP Morgan, Morgan Stanley, Goldman Sachs, and Wells Fargo, together accounting for about $1 trillion in re-hypo-repos or whatever you want to call them. So, our little cartoon above is more than idle humor. ~DS Hudson |
| NEWS-
Markets
Fume Over Secret $13 Billion Conduit to Banks NEWS- Markets Outraged Over 2008 Paulson Leak on Freddie-Fannie to Hedge Funds, Goldman Cronies Orange
Opinion
Now We Know Where
They Got
All That Dadgum Money!! Tuesday November 29, 2011 |
a reader service of orangequant.com |
|
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If you
were still wondering where banks
got all that danged money when you were short in March-June
2009,
wonder no more. In a Bloomberg
article it's just been
disclosed that Citigroup, Bank of America, and Royal Bank of Scotland
Group each got more than $1
billion in secret Fed funds (with Wells Fargo getting a paltry
$878 million). So they were able to kill your short, again and again,
just like they killed mine. As if that's not enough, the next day Bloomberg strikes again with a piece on how former Treasury Secretary Henry Paulson tipped major hedge funds and former Goldman Sachs cronies to the Fannie-Freddie takeover which took place in September 2008. Within minutes of the piece's posting, the comments section was flooded with angry posts. |
Remember the first week of September
'08? That's when the market started its second ferocious leg down. So
if you were still wondering how all the dark spirits shorted your long
position to death, that's the answer. Somebody was frontrunning
the
trade,
weeks in advance. Of course, those at the Paulson luncheon deny they
shorted Fannie and Freddie on this "nonpublic information" because
they'd
go to prison for insider trading. But every moron and newbie trader
knows there would've been a thousand other ways to short the market on that info,
like by shorting the SPX, for instance. So that's where they got all that dadgummed stinkin' money, and that's where all your money went. ~DS Hudson |
