Borrowed Time

America’s growth, its entire business and housing market, most job-creating corporate functionality, has been based on the ready availability of credit. In 1975, according to the August 17^th Washington Post, the ratio of consumer debt to our nation’s entire economic output was 45%. In the first quarter of 2009, it was 97%. The lending capacity of local banks to local consumers was hit hard enough in the subprime collapse last year and early this year; what’s left of that lending capacity will shrivel up, taking large local banks to their own collapse (like the sixth largest fall of a bank in U.S. history last week, Alabama’s Colonial Bank), as the failures of the commercial real estate market shrink the lending capital base even more.

Americans are saving more now – “deleveraging” as some say – from 1.2% of disposable income in early 2008 to 5.2% today, but with the consumer credit pipeline all but closed (except where the government intervenes), that basic fuel to most of America’s modern recoveries from economic disaster – credit – is severely limited and much more expensive than the current “near-zero” Federal Reserve rate would suggest. Once corporate America disposes of its current inventories – sales below cost to generate operating capital in many cases – what’s next?

The Post: “‘Credit fuels housing. It fuels consumer durable goods. It fuels business investment. It's in every part of the economy,’ said [Carmen M.] Reinhart, an economist at the University of Maryland. ‘Credit makes recessions after a financial crisis longer, and all the signs are that [it] is happening this time as well.’” Credit Recession?

The robust recovery that followed most modern downturns doesn’t look as if it is going to happen this time. “Huge swaths of the financial system have been damaged, which could lock consumers and businesses out of loans for years to come. American families are saving more and relying less on borrowed money. In this global recession, no part of the world appears poised to lead a buoyant recovery. And the U.S. government's aggressive stimulus efforts -- including special Federal Reserve lending programs and full-throttle government spending -- may need to wind down before the economy returns to solid footing.” The Post. Strange thing is that our government, while spreading the word that the current recession shows signs of ending, doesn’t disagree with the foregoing assessment.

Maybe a better way of understanding what is going on is to think of the economic malaise as a series of related recessions, each one leading to the next. The subprime loan collapse, which devastated our biggest financial institutions, led to a collapse of both the residential real estate market and a contraction in general access to credit. Severe job loss followed, and contraction of the economy made credit even harder to get. The government stepped in to shore up the financial big boys, but even as this task was beginning, the realities of residential real estate fall began to be applied to the commercial real estate market (we’re there right now), hitting local and mid-level banks even harder.

The DailyDeal.com (August 17^th): “Impaired may be putting an optimistic spin on circumstances as commercial real estate property values have fallen 35% since October 2007 and $165 billion in commercial mortgages need to be refinanced this year… Over the next three years, about $1.5 trillion in commercial real estate loans are coming due, Walter J. Mix, a managing director at LECG LLC, recently wrote in The Deal magazine… Realpoint Research reported that June delinquencies in commercial mortgage-backed securities rose an ‘astounding’ 585% to a 12-month high of nearly $29 billion, while Real Estate Econometrics LLC predicted that the default rate on commercial real estate is likely to reach 4.1% by year's end. That projection would imply defaults on about $44.3 billion of commercial mortgages, based on the $1.08 trillion of such loans held by U.S. banks in the first quarter, according to data in the report.”

The stock market does not seem to have reflected this second phase of economic collapse, focusing instead on the corporate efficiencies generated by cutting costs (even if it required laying off masses of people). Reacting to “news” and short term trends, the market has yet to reflect the uncertainty of a severely prolonged credit crisis. It would be different if our companies, unable to sell products and services to local American consumers because of this credit crunch, could turn to buyers overseas, but the global economy is in disarray as well. Consumers everywhere are holding back, and as a result, U.S. exports have decline, during this debacle, by 16%.

All of this suggests that much of the government’s going-forward focus has to be on repairing the grassroots, local consumer and small business credit markets, a direction that so far, Treasury Secretary Tim Geithner and President Obama have refused to follow. With too much on the federal government’s plate, with tax resources strained and deficits soaring, the government seems to be content to get this elongated credit impairment drift for years, taking down more and more American families in the process.

Their response to the commercial real estate failure rate is to extend the TARF (the program where the government subsidizes buyers of “troubled assets” off the banks’ books), but financial institutions have been loath to use this program, because it forces them to reduce their asset value accordingly (making it difficult to access Federal Reserve funds). In short, the program just doesn’t work. The current administration may not have caused this economic crisis, but they are in charge of prioritizing the solutions.

I’m Peter Dekom, and I approve this message.

Cling-Ons Attack America!

Watching grass grow has a faster timeline that watching the economy improve. There are those who tell us that The Great Depression has a bigger lesson for Wall Street traders than seems to have been learned so far. They are profound neo-negativists who believe that the 50% rally in the post-crash market during The Great Depression followed by an even steeper 85% drop in share values is exactly the pattern that will apply here. Pointing out that the current market reflects the economies of cost-cutting and layoffs but shows no revenue growth to sustain the Dow and that the commercial real estate debacle has yet to roll through the banking world, these nay-sayers have a big substantial following in the investing world. I hope they are profoundly wrong.

But we have the Pollyanna-ish statistics of both business and government telling us that we are at the beginning of the bottom, that except for a “few aftershocks” of slightly higher unemployment and some continuing losses in residential real estate, the economy has stopped contracting. Still, the government lets banks carry toxic underperforming, under-collateralized or non-performing mortgage derivatives sit on the balance sheets of these institutions (the heart and soul of their ability to borrow money from the Federal Reserve) as if they were solid and real. We get statements like the reduction in the unemployment rate to 9.4% without emphasizing that 400,000 Americans are no longer counted in that statistic, because they have run out of unemployment benefits. We’re masters of illusion!

With the exception of the “cash for clunkers” program – basically a federal give-away – retail sales continue to show that Americans aren’t spending; we’ve become a nation of terrified cling-ons. The August 14^th NY Times: “Halfway through the back-to-school shopping season, retail professionals are predicting the worst performance for stores in more than a decade, yet another sign that consumers are clinging to every dollar…

“Stock analysts at Citigroup are predicting a decline in back-to-school sales for the first time since they began tracking the figures in 1995. They estimate August and September sales at stores open for at least a year — known as same-store sales — will fall 3 to 4 percent, compared with an increase of nearly 1 percent in the same period last year.

“The National Retail Federation, an industry group, expects the average family with school-age children to spend nearly 8 percent less this year than last. And ShopperTrak, a research company, predicted customer traffic would be down 10 percent from a year ago.”

It is estimated that 22% of American homes are worth less than the mortgages on the property with projections that this number will rise to 30%. The government also doesn’t seem to have addressed the issue of massive commercial real estate failures – evidenced by a 585% increase in foreclosures in this sector over the same period last year. On Friday the 13^th, the sixth largest bank collapse in U.S. history, Colonial Bank (Montgomery, Alabama), was taken over by the FDIC. The main reason, one that trembles all across the smaller regional banking community? The failure of its commercial real estate portfolio. Yet our government “clings” to slower declines in negative numbers and a rising stock market to tell us that the recession is just about over, but they carefully admonish that high unemployment and soft real estate values are our future for the foreseeable future.

What does the government really have to do? Well clearly, their attempts to stem the tide of residential mortgage foreclosures are a complete bust. July saw a 7% increase in foreclosures over June. Bottom line: the government needs to deal with the underlying fear that has eroded consumer confidence. Enough “stimulus subsidies” for those big boys; if I read one more story about Wall Street bonuses…

At a sub-zip code level, the Feds need to mandate an automatic mortgage reduction for any who apply as to residential mortgages that are in sub-zip codes with average mortgages that are underwater, and allow the same to occur when homeowners in other areas can prove the they are underwater. We can cap that at 10% of the value of the mortgage, the government can cover the difference vis-à-vis the banks, and we need to cap mortgage rates at the new Freddie and Sallie rates. The banks’ get better balance sheets; homeowners get more spendable cash and less fear. Given the massive stimulus package, think of how different it would have been if all that money had instead simply been given to homeowners to reduce or eliminate their mortgages! It would never have happened (I’m picturing screaming renters), but we probably would be well out of this financial meltdown by now.

The second giant step the government needs to take is to force lending liquidity into small businesses that provide the bulks of the jobs in this country. Small business loans need to be provided through a simpler and expedited process, backed by the government, and funded immediately. Selling inventory at less than cost to generate operating capital (where loans are unavailable) puts companies out of business and kills jobs. Tuition subsidies are needed to train or retrain the American workforce to earn its way out of its uncompetitive malaise.

At the most simplistic level, government has spent way too much time and money on the big boys to “lead us out of the recession.” They’ve only led themselves out of the recession, leaving the suffering to the average American… and we’ve become a nation of cling-ons.

I’m Peter Dekom, and I approve this message.

A Harmony of Opposites, But Business First

Some call it Chimerica – the seemingly symbiotic yet tense trading relationship between China and the United States. They are our biggest creditor, whether through a profound trade imbalance (half of our trade deficit comes from China) or their purchase of U.S. Treasuries by reason of our massive deficit. The last time China and the West had this level of trade imbalance, during the mid-1800’s, Britain’s addiction to Chinese tea and China’s unwillingness to find any British manufacture worthy of import led to the infamous Opium Wars, where overstocks of opium in India were literally forced down China’s throat (nose?) at gunpoint to force a reversal in the trade imbalance by way of drug addiction.

In modern China, Americans seem amazed that a “communist” country can be so completely capitalist. China has long been willing to live with a harmony of opposites, the Yin and the Yang, but it was Deng Xiaoping, the first real post-Mao leader of China, who set the stage for the current “economic structure” of China. Mao had sunk his nation into chaos and starvation, isolated and fearful of the rest of the world, as he tried to take feudal China (his famous “blank slate”) directly into the modern world. Deng ordered his people to revere Mao, but reminded them that true communism, based on Marx and Lenin, required a transition from capitalism into communism; since China was essentially still feudalistic, Deng stated that a foray into capitalism was thus a necessary precursor to true communism.

Over Deng’s tenure, and the rule of Jiang Zemin immediately following, an unholy alliance was made between the old guard in the Communist Party and the government functionaries who redirected China into a modern industrial nation, bent on manufacture and export: the Party would maintain control over politics, speech, media, culture and communications, while the top hierarchy was empowered otherwise to modernize the Chinese economic structure. Without the slightest doubt, China’s wild and virtually unabated economic success placed the economic pragmatists firmly in power, but enough of the old guard remained so that struggles often cracked through the seams.

The recent Uighur riots, the attempt by the Party to require “Green Dam” filtering (and tracking) software in every new computer sold (they backed off in the interest of commerciality, and the software is only required of public access computers), the arrest of dissidents, the accusations of Rio Tinto (mining company) executives as spies… the list goes on… are inconsistent with China’s growing role on the world stage, at every level. The Chinese leadership knows that, but there are old guard factions that still must be catered to… an old guard that is clearly losing its grip and influence. As such functionaries dies or retire, China is poised to move forward across the board, because today, the mantra is always, “Business First!”

But business in the West includes a huge segment of intellectual property values, from computer software to movies, and intellectual property of necessity fudges the line between pure commercial values and creative free expression. It is that murky mess between the sphere of influence granted to the old guard in the Communist Party and the new commercially directed leadership of China.

Enter the World Trade Organization. China signed on in 2001, agreeing to allow foreign companies to operate within China, and sell goods and services, on a non-discriminatory basis. But China has always clamped down on the legal import of foreign books, music and movies, requiring that films, for example, go through two very sharply controlled government-controlled distributors under both unfavorable terms and in exceptionally limited quantity. A local partner, usually government controlled, was an essential ingredient for foreigners in this space. That said, you can get a pirated copy of virtually any film or song available in the West almost anywhere in China.

On August 12^th, the WTO ruled that China’s restrictions on such artistic but commercial fare violated China’s obligations under the WTO. The initial reaction in the Peoples Republic of China was to consider an immediate appeal, and perhaps that is the course that China will eventually choose. But if current trends in the PRC are any indication, perhaps this ruling will allow China’s leadership to wrest away a piece of what had been ceded to the old guard Communists under the aegis of “business first.”

The August 14^th New York Times: “The Chinese legally may appeal the decision, but the foreign minister, Yang Jiechi, indicated in a Geneva speech that simply ignoring [the WTO ruling] was not an option. China worked for years to join the global trading system and is bound, as much as other nations are, by its rules… ‘China will never seek to advance its interests at the expense of others,’ Mr. Yang said, according to Reuters…

“‘Fifteen years ago, the mantra in China was, ‘We’re the victims of a system that’s stacked against us,’ ’ said James V. Feinerman, an expert on Chinese law and policy at Georgetown University in Washington… China’s entry into the world trading system, he said, is slowly helping to change the nation’s view of itself from that of an outsider to an insider with a stake in the global system’s success.”

We are likely to see some inconsistency in China’s reaction to this ruling, specifically, and to the control over commercial intellectual property in general, as the old guard battle to preserve their control over their “sphere of influence” against the central economists who want to continue China’s role as a global power with maximum trading power. It just helps to know the rules.

I’m Peter Dekom, and I approve this message.

Just So Much Gas

Clean coal… kinda sounds like, new, improved, vitamin enriched coal. Yum. All that greenhouse carbon dioxide (CO2) that is the nasty byproduct of burning coal… hey, we can handle it! NOT! Just as the military has determined that global warming could trigger natural disasters, agricultural calamity and political destabilization that could topple nations and draw American forces into combat, it would seem mandatory that we start cleaning up! No room for mythology.

The August 8^th New York Times: “Recent war games and intelligence studies conclude that over the next 20 to 30 years, vulnerable regions, particularly sub-Saharan Africa, the Middle East and South and Southeast Asia, will face the prospect of food shortages, water crises and catastrophic flooding driven by climate change that could demand an American humanitarian relief or military response.

“An exercise last December at the National Defense University, an educational institute that is overseen by the military, explored the potential impact of a destructive flood in Bangladesh that sent hundreds of thousands of refugees streaming into neighboring India, touching off religious conflict, the spread of contagious diseases and vast damage to infrastructure. ‘It gets real complicated real quickly,’ said Amanda J. Dory, the deputy assistant secretary of defense for strategy, who is working with a Pentagon group assigned to incorporate climate change into national security strategy planning.”

Since the U.S. is loaded with coal, the Saudi Arabia of coal if you will, we need to burn coal – clean coal that is – to achieve energy independence. Lots of it. Tons and tons of it. But exactly what is the “clean coal” we’ve heard politicians bandy about. Some cool new technology that turns this carbon dioxide into a harmless but useful substance? There are a few such technologies that have been devised to do that, but they are so far from any economic deployment so as to be meaningless. The real “clean coal” is more like a game of hide the salami… find empty oil fields and aquifers and pressure pump all that emitted carbon dioxide deep into the earth… for decades if necessary… until we figure out what to do with the nasty stuff. Bury it out of sight and out of mind.

The euphemism for this folly? Carbon capture. The August 9^th Washington Post: “Yet carbon capture and storage remains the elusive holy grail of the coal industry, an idea that could contain the damage inflicted by coal-burning power plants but a technology that remains expensive, energy intensive and largely untested. Even optimists say it will not be commercially available for another six to 10 years. Pessimists say it might take much longer, and may never be ready for widespread use without attaching a punishingly high price to carbon.” Oooh, that doesn’t sound too good.

But wait, there’s more! The Post continues: “‘There is no credible pathway towards prudent greenhouse gas stabilization targets without CO2 emissions reduction from existing coal power plants,’ Ernest Moniz, a professor at the Massachusetts Institute of Technology and a member of President Obama's Council of Advisers on Science and Technology, said in a report earlier this year. ‘We urgently need technology options for these plants and policies that incentivize implementation.’

“Coal ‘is still the elephant in the room,’ said John Ashton, special representative for climate change at Britain's Foreign and Commonwealth Office, at a meeting in Washington last month. ‘We can't deal with it, we can't tame it without . . . carbon capture and storage.’ He said that to meet the newly agreed upon target of limiting global warming to two degrees, nations must make carbon capture ‘standard technology by 2020.’”

Dirty coal; we’ve got plenty of that… legacy plants (pre-1977) operating in urban environments in and around cities like Chicago, Washington, D.C., Detroit, Cleveland and Milwaukie are killing us. The August 16^th Washington Post: “Public health advocates say these urban power plants can pose a threat to local residents, with ozone-forming compounds and particulate matter exacerbating respiratory and cardiac problems. A 2001 study by a Harvard School of Public Health professor suggested that statistically, the two [legacy] Chicago plants could cause 41 premature deaths and 550 emergency room visits per year.”

So we have plenty of dirty coal, and there really isn’t any such thing as clean coal? It’s just hiding the dirt under the rug, sort of? That dirt will just continue building up? And we aren’t technologically ready to do even that? So the government is contradicting itself? What a surprise!

I’m Peter Dekom, and I admire this attempt at government double-speak.

Three Strikes and You’re Broke

In the early 1990s, after a plague of urban crime, many states passed the famous “three strikes and you’re out” laws – imposing a life sentence upon the third felony conviction, a penalty assessed against seemingly incorrigible, habitual criminals. The press is filled with stories of felons, committing less serious felonies (often non-violent or fairly limited violence, like a punch or a hit), finding themselves without hope, incarcerated for life.

The Los Angeles Times (August 10^th) noted that in Seattle, WA, Stevan Dozier was 25 when he punched a woman in the face to snatch her purse to feed a coke habit. Two more convictions (the second and third strike) for the same crime led him to a life sentence without the possibility of parole. In January, he observed, “My sentence is the same as the Green River killer's. . . . And other people who have viciously murdered and raped women and children are getting out of prison while I never will…” Lucky for Dozier, the governor granted him clemency in a program where Washington State is reviewing persons convicted under the three-strike laws to make sure such tough justice is clearly justified.

With overcrowding creating horrific conditions, as the August 8^th riot at the California Institute for Men at Chino – a medium security penitentiary housing 5,900 prisoners – proves. 175 prisoners were injured, and a dormitory was burned. Another piece in the Times notes that: “California has 158,000 prisoners in facilities designed for 84,000. A special three-judge federal court [in the first week in August] ordered the state to reduce its prison population by nearly 43,000 over the next two years to bring conditions up to constitutional standards.”

State budgets are hemorrhaging red ink as this managed depression tears at property, sales and income taxes. Housing prisoners, an annual costs ranging from $25,000 to $40,000 per year per prisoner, is a cost that requires serious reassessment, particularly since prisons seem to be nothing more than criminal institutions of higher learning in a country with 5% of the earth’s population and 25% of its incarcerated prisoners.

Which brings us back to the “popular” legislation – the three-strikes laws – that may have outlived its usefulness. The Times: “Fifteen years after voters and legislatures across the country began embracing the three-strikes concept, many states apply those laws more sparingly. Prosecutors and judges often use the discretion provided them to avoid charging a defendant whose past consists of minor robberies or assault convictions with a third-strike offense.
… Now Washington is taking the extra step of reviewing the cases of some nonviolent three-strikes prisoners and moving to release those, like Dozier, who probably would not face such a severe punishment today.”

In the end, the popular notion was that a specific number of convictions yielded a linear and predictable result. Take the discretion out of the hands of those soft prosecutors and judges. Okay, there were variations on a theme: “In California, where the law is less harsh than in Washington, two-strikers get a doubled penalty, and three-strikers face 25 years to life, with parole. More than 40,800 of the state's 170,000 inmates are behind bars under second- or third-strike provisions, with more than 8,400 of them sentenced to the full 25 years to life.” Still, can we really afford to have an automatic triggering mechanism filling our overcrowded prisons with people with increasingly longer sentences? We just do not have the money to do that anymore.

So what were the people saying when they championed this harsh legislation? That incorrigible and habitual criminals should not be turned back onto the streets to continue their criminal activity? So perhaps a specific hearing added to the trial of a repeat offender, a separately prosecuted charge, requiring proof of additional danger to society by reason of incorrigible and repetitive criminal activity, should be a precursor to a lengthy additional sentence. Not an automatic trigger, but a reasoned response… maybe accompanied with an automatic review after a specified period determined by the court. After all, senior citizens may have an entirely different perspective than that of a hardened gang-banger in his or her early twenties.

I’m Peter Dekom, and I approve this message.

A Recovery Only a Statistician Can Love

Numbers don’t lie, unless they do. What do you think about a “recovery” where wages are stagnant, unemployment remains high, borrowers (particularly commercial real estate) default, consumers don’t spend and home prices remain depressed? What am I missing here? That folks who have been on unemployment so long that they fall off the federal unemployment numbers (400,000 in July alone fell off the official tally!)?

That the stock market has soared based on new efficiencies brought on by layoffs and other cost-savings techniques without any increase in revenues? Welcome to Economics 2009-2010. Even with oil prices rising fast, the overall economy has contracted – prices have dropped, year-to-year, according to an August 14^th announcement by the Department of Commerce – 2.1%, the biggest decline since 1950. People just aren’t buying… bad news. But big, well-capitalized predators are cleaning up in this collapsed economy.

The financial institutions with inside information can find distressed debt that leads them to bargain stocks and real estate propositions, where a small assumption of debt can take over a huge equity base. When is our government going to require big, powerful investors to take on at least some portion of the debt structures they endorse onto their own books? Or should they simply punish the entire economy as they have in the unregulated past?

We’re talking about requiring banks to keep at least 15% of the mortgages they approve when they sell bundles of loans to third parties as they create tradable debt derivatives based on those loans. That way, banks and other lenders have to suffer when they lend bad money to worse borrowers. But why don’t we require private equity investors, who have traditionally placed 100% of the debt they borrow when they buy companies only on those acquired companies’ books (and not on their own books), to carry at least 15% of that debt on their own books? That would make their investments smarter, provide real value to the U.S. economy as a whole, and make them take some responsibility for their borrowings! Could it be because Goldman Sachs appears to be just one more cabinet appointment no matter who the President might be?!

The August 12^th Washington Post: “‘It's going to be a recovery only a statistician can love,’ Wells Fargo senior economist Mark Vitner said… A few recent pieces of data offered reasons for both hope and trepidation… The Labor Department reported [August 11^th] that business productivity jumped in the second quarter to a seasonally adjusted annual rate of 6.3 percent, far higher than the annual average of 2.6 percent from 2000 to 2008.

“Higher productivity helps raise living standards in the long run and is good for corporate profits because it allows companies to produce more without paying higher labor costs. But the boost in productivity was largely due to businesses slashing hours faster than output. Labor costs per unit fell, but so did the buying power of workers, further constraining already weak consumer spending, which accounts for 70 percent of the economy.”

But folks are working less, as a whole, than ever before. Nine million people are working part-time who want more. People who have been jobless for 27 or more weeks also hit a record of 5 million in July! If you are a human being living in the United States, we are deeply in a recession. It takes time after a huge economic contraction for normalcy to return. Even with lesser economic meltdowns. Like the recovery following the dot.com contraction in 2001. The Post: “Once it was officially over, it took 55 months before a greater share of Americans had jobs than when the recession ended, compared with 29 months after the 1990-91 recession and just seven months after the 1981-82 recession, according to an analysis of government data by University of California economist Brad DeLong.”

And here’s the simple truth. “‘Economists are using one concept of recession that is at total variance of how a normal human being thinks of it. A normal human being thinks of a recession as: You fell into a hole, and as long as you're in a hole, you're in a recession,’ said Lawrence Mishel, president of the Economic Policy Institute. ‘Economists think of [a recession's end] as . . . when the economy stops shrinking… We have excess capacity and high unemployment across the board…What we need is customers.’” The Post.

Make the bad man stop! At least make the bad man stop lying about our “recovery”!!!

I’m Peter Dekom, and I approve this message.

Mass Appeal

Massachusetts is one of those states that opted for universal health care (signed into law by a Republican Governor, Mitt Romney, in 2006), and today, it is estimated that 97% of the State’s residents have some form of coverage. The thrust of the legislation is that citizens are required to have health insurance, and if they cannot afford it, the State subsidizes the tab depending on income. For employers that opt out of providing this benefit to workers, there is a “per capita” assessment, which is in turned used by the State to provide health benefits to those who cannot otherwise afford a plan. There are also open general pools of private insurance benefits, aggregated by the State, which individuals not covered through work can access.

The plan has, by and large, proven to be a success, raising the governmental cost on healthcare from $1 billion to $1.7 billion (the entire budget for Massachusetts’ State governmental budget is $27 billion). Rising medical costs, however, forced the State to reduce some benefits and raise cigarette taxes to generate extra revenue for the program. Federal contributions also help carry the load. Recent bumps along the way, such as the recession which caused a drop in the State’s tax base (which has impacted virtually every state in the union), have forced the State to adopt some drastic measures (like denying legal immigrants’ coverage) and turn even more toward addressing that seemingly never-ending spiral of medical costs.

There is much to be learned from Massachusetts, since this appears to be a model similar to what the Federal government is contemplating. The thresholds for a cut-off on subsidizing healthcare vary, however, between the Federal plan under consideration and the Massachusetts structure. For example, for a family of four, $66,000 is the limit for subsidies in the State, while the Federal plan currently targets $88,000 as the top limit.

But the good news actually is about “costs.” Federal budgetary projections tend to run wildly below what ultimately costs turn out to be; Americans are wary of such numbers and look at them with a jaundiced eye (maybe some health benefits could cure the jaundice!). However, the Massachusetts experience provides positive news; the cost of the program has pretty much stayed within the parameters of the initial projections.

As the plan was implemented, administrators had to tinker with the scope of benefits, the price structure and how to fund those portions of the program (like open admission to emergency rooms) that were not provided for at the inception of the policy. The early and current stages of Massachusetts’ healthcare provide the usual reimbursement of fees for service, but to control costs, that model may be abandoned in favor of a structure that does not reward prescribing more fees and services as a way to generate medical compensation.

The August 9^th New York Times: “A special commission has just recommended that the state try, within five years, to move its entire health care system away from reliance on fee-for-service medicine, in which doctors are paid more for each additional test or procedure they provide.

“In its place, the commission wants a system in which groups of doctors and hospitals would receive fixed sums to deliver whatever care a patient needed over the course of a year. The hope is that doctors would be motivated to deliver only the most appropriate care, not needless and excessively costly care, with safeguards to ensure that they do not skimp on quality.”

These experiments are valuable lessons that do not have to be “re-learned” as a Federal plan makes its way, past the loud protests at town hall meetings, to the floor of Congress. Undoubtedly, even after passage (if that occurs) of national healthcare legislation, adjustments and changes in overall direction must be expected. Will we someday look at all the brouhaha surrounding the current proposals before Congress with the same bored detachment we view social security or unemployment insurance benefits? Time will tell.

I’m Peter Dekom, and I thought you might want to know.

“Pointed in the Right Direction”

Picture if you will a large ship being sucked backwards towards a vortex astern, a whirling oceanic anomaly that no one knew was there, that no one figured could happen, but that one that is inhaling hapless vessels by the thousands. The ship is struggling to move forward, rudder amidships, pointing toward home. Are we in the Bermuda Triangle? A science fiction film? Or the U.S. economy? Is our ship in good shape because of the direction of her bow – homeward?

We lost more jobs in July, 247,000 according to the government, but our national unemployment rate went from 9.5% to 9.4%, an adjustment that has more to do with the ways statistics are measured than with the reality of job loss. Do I think all this shall pass? Yes, but on the government’s timeline. Do I think we are “pointed in the right direction,” as the President said on August 7^th? Perhaps.

Do I think that the ship is pulling away from danger? One of the dangers perhaps, but other oceanic anomalies are still out there. Big ones! We still have to figure out exactly what unemployed Americans will do for a living, what happens to our banking system that is anything but stable (the commercial real estate failure and destroyed home values continue to test the system), AIG is hardly safe from collapse, the impact an inflation-threatening massive deficit looms, we don’t even know if the new GM and Chrysler will survive, Social Security is slowly running out of money, and no one really knows what healthcare proposal is actually on the table.

The President tells us, “We’re losing jobs at less than half the rate we were when I took office.” Yes, Mister President, you did not cause this mess, and we understand that you didn’t even begin the solution. The collapse did not start on your watch, and TARP did come from the last guy. The solutions that followed are yours, however, and while we all need a cheerleader, Americans probably need to believe the numbers released by private standard-setting organizations and the U.S. government. I’ve blogged that horse more than once. Consumer confidence must be based on numbers ordinary Americans can believe.

Obama continued: “Now, as we begin to put an end to this recession, we have to consider what comes next, because we can’t afford to return to an economy based on inflated profits and maxed-out credit cards, an economy where we depend on dirty and outdated sources of energy, an economy where we’re burdened by soaring health care costs that serve on the special interests.” How do unemployed and underemployed people pay those credit cards? Is alternative energy where the new jobs are coming from? Is that enough? Come on! Where do all those folks whose subprime mortgage brokering services get work… or do they just go into a massive new prison (an infrastructure project!) that so many Americans would like to see them endure? Where is that business bank credit that is so desperately linked to small business jobs? What’s the plan? Exactly?

The August 7^th New York Times: “Mr. Obama said, ‘We won’t rest until every American that is looking for work can find a job.’ … In a coincidence that was probably not intended, the president was quoting his predecessor almost verbatim: In the summer of 2004, the Republican Policy Committee said: ‘Improving the quantity and quality of jobs remains a top priority for Republicans. In the words of President Bush, ‘We won’t rest until everybody who wants to work can find a job.’” We must not be resting much!

I’m Peter Dekom, and I would really like some answers.

Death Panel

Sara Palin has a lot of followers. The Associated Press (August 8^th) noted her first “post-gubernatorial” edict: “Palin called President Barack Obama's health plan ‘downright evil’ [on August 7^th] in her first online comments since leaving office, saying in a Facebook posting that he would create a ‘death panel’ that would deny care to the neediest Americans… ‘The America I know and love is not one in which my parents or my baby with Down Syndrome will have to stand in front of Obama's ‘death panel’ so his bureaucrats can decide, based on a subjective judgment of their ‘level of productivity in society,’ whether they are worthy of health care,’ the former Republican vice presidential candidate wrote.”

OK, the debate is on. The President did say that the biggest expense in our healthcare system was focused on extending the lives of the elderly, often at hideous cost (averaging $20K a day in the last year of life) with exceptionally unspectacular results and some pretty terribly painful treatments. So we should kill the old bastards, tell them they are out of luck on the care they want and kiss them off? Not exactly. OK, not even close.

Charles Lane writing in the August 8^th Washington Post: “Enter Section 1233 of the health-care bill drafted in the Democratic-led House, which would pay doctors to give Medicare patients end-of-life counseling every five years -- or sooner if the patient gets a terminal diagnosis…. On the far right, this is being portrayed as a plan to force everyone over 65 to sign his or her own death warrant. That's rubbish. Federal law already bars Medicare from paying for services ‘the purpose of which is to cause, or assist in causing,’ suicide, euthanasia or mercy killing. Nothing in Section 1233 would change that.”

The counseling that is envisioned deals with choice. Do you want extreme measures to be applied to you, when you are unable to think or speak coherently for yourself, to extend your life? Even if such procedures are painful, uncomfortable or even akin to torture? I’ve noted my own familiarity with these issues, and both my parents wanted to die rather than face the world in which they were living at the end of their lives. My mother, who died of Alzheimer’s, knew her mind was crumbling long before her death. She did not want to live without her memories or an ability to talk to those around her about who she was.

My father, frail, weak and in pain, begged me to end his life. His mind was operating at a delusional and primitive level, even though during most of his life, he could only be described as brilliant. He died in abject desolation, unable to dress himself, speak coherently or walk without wincing and shuffling. He died “of natural causes.” He was not mentally capable of making a rational decision about his own life, so doctors just “kept him alive.”

Picture yourself, barely conscious, drugged out, with an IV drip and an oxygen mask over your face attached to a constantly beeping EKG machine monitoring your existence. Feel the pain creeping in between the drug treatments. Imagine confusion and the inability to speak to those around you; the words just don’t come out. Could a living will have given you a more comfortable choice? Could counseling have given you a clearer decision?

Perhaps, we simply need to be more humane – a kind of pragmatic approach to those final months of life. If there is a “death panel,” there is no way that Americans could ever live with such a system. But that’s not on the table (and it never will be); it’s just a scare tactic paid for by those with huge economic stakes in the profitability inherent in an industry that consumes 16% of the U.S. gross domestic product: healthcare. People do not want to be separated from their money, and if it takes scare tactics to do that, well… it wouldn’t be the first time.

That said, the healthcare proposal that may wind up before Congress has yet to be ironed out. Blue dog Democrats are bucking some of the universal benefits that were in the original concept; virtually all Republicans on the Hill oppose the notion of national healthcare of any kind. Solid debate is necessary. Not death threats against those who favor the plan or screaming epithets drowning out genuine exchanges of points of view. Scare tactics hide the truth; the shape and scope of healthcare reform needs ideas. The plan has yet to take a “final form,” but making a decision based on fabrications, left or right, isn’t what this process should be all about. Let’s deal with truth. 46 million Americans are not covered by any form of health insurance, and the cost of existing healthcare plans is rising still at a multiple of the general cost of living; soon even fewer Americans will have coverage.

I’m Peter Dekom, and I approve this message.

No Siree, No Grocery!

Another couple of hundred thousand jobs gone in July (9.4% unemployment for the nation), according to the Department of Labor, but the jobless rate in Michigan is over 16%... and yeah, that comes with my normal admonition that these numbers address only non-farm labor and do not include folks whose unemployment benefits have completely run out (and there are lot of them now), and people who want full time jobs but can either only find occasional or part-time work or don’t know where to look anymore. You know Michigan reaches well above 20% when that correction is included.

Getting right down to it, we know that Detroit has been losing population for quite a while, but the demise of big General Motors and big-enough Chrysler suggests that “Motor City” might just have to be content with being known as “Hockey Town” – if there are enough folks are left to buy tickets. You see Detroit has dropped from an all-time high population of 1.8+ million to about half that number. It’s fallen in size from the fourth largest US city (in the 1950s) to eleventh today. And while there are rumors of Chinese buyers scooping up masses of vacant residential and factory real estate, I’m not sure they are big hockey fans.

My Webmaster, who was the gent who spotted a great deal for a house in Detroit (under $10K for a three bedroom, two bath house in seemingly decent condition) until a view from Google Earth showed that the rest of the neighborhood had been bulldozed into rubble, pointed out another ramification of the crumbling neighborhoods, abandoned factories, de-population and economic demise of this once-great American city: “In this recession-racked town, the lack of food is a serious problem. It's a theme that comes up again and again in conversations in Detroit. There isn't a single major chain supermarket in the city, forcing residents to buy food from corner stores. Often less healthy and more expensive food.” August 6^th CNN.com.

Middle class workers have become increasingly formerly middle class workers. From shopper to food line aficionado. They’re not good at the welfare thang. They don’t know their rights, struggle to qualify for unemployment benefits (which eventually run out) and find the adjustment from comfort to poverty completely, mind-numbingly horrible. They didn’t grow up this way; they don’t know how to make the system work. There’s real hunger in Hockey Town. It’s a real struggle for local charities and local, cash-strapped, governmental agencies to keep up. Resources have worn thin, but neighbors are helping neighbors as best they can.

There’s lots of vacant land in the area, and “urban farming” has seen resurgence out of necessity. Volunteerism at local food pantries has also increased significantly. There’s a lot of humanity here. But the pictures and stories from decimated urban Detroit seem more like description of some third world hopeless country than my vision of the United States. I am deeply saddened. The reports that we’re getting better because we are getting worse more slowly just don’t cut it in my eyes.

I’m Peter Dekom, and I approve this message.

Stressed and Depressed

I’ve railed that the government and Wall Street seem more obsessed that the “numbers look right” than if the economy is getting better. People tell you that the rate of job loss is declining in the U.S. making it seem like continuing and rising unemployment is somehow good news. Fact is there are fewer employed Americans now than at any time in decades! Home prices have stopped falling in some markets, still plunging in others, but home prices are in the cellar everywhere, it seems. Yet the “stall in the fall” is still viewed as good news. That like saying a terminal patient isn’t dying quite as fast as anticipated. Getting worse more slowly doesn’t seem exactly like getting better to me.

I’ve screamed that most of the rise in Wall Street market numbers is attributable to economies generated by cost-cutting, not revenue generation. Lay-offs and unemployment can be “great” when you are looking to reduce operating costs of a single company, but all those former employees (and those with reduced pay) aren’t new consumers; they aren’t going to spend more money and boost corporate revenues. Still the market seems not to care. It should.

I’ve repeatedly reminded readers that 70% of American economic activity is generated by consumer spending. And consumers are definitely not spending, so if companies think that they can grow and have good numbers by cutting costs but without customers, I’m wondering what planet they must be on. Where there have been retail numbers that show activities, a little “look behind the curtain” suggests that all is not that rosy. You may see more car sales, but what role does the government’s “cash for clunkers” program have in all that? When stores report increases in sales, how much of that is dumping inventory below cost (some stores seem to be in perpetual “sale” mode) to generate operating capital to stay afloat?

July retail sales were grim. The August 6^th Money on AOL: “‘The consumer is stressed and depressed,’ said Ken Perkins, president of retail consulting firm Retail Metrics. ‘Back-to-school shopping season is going to be very late.’ He added that jobs are ‘everything right now,’ and if the pace of job losses continues to slow, consumers will start to feel better… A number of special factors also depressed July's sales results. Lean inventories left fewer clearance options for bargain hunters, as stores wanted to protect themselves from getting stuck with piles of leftovers. The shift of the sales-tax holidays from July to August in most of the 14 states that have them because of a late Labor Day weekend also stole momentum from July.”

We’ve had eleven straight months of same-store-sales declines. Yet the government is telling us how we are turning the corner. What corner? Is it a corner that leads to another corner? If folks’ home values remain trashed, job loss rising and retail sales are like a stone falling over a financial cliff, how exactly are we turning a corner? “Show me the money!” Sorry, since I’m not a managing director at Goldman Sachs, you are going to have to explain exactly why this economy should look good to me… or even a bit better than it was. Things are actually worse! Naked emperors abound!

I’m Peter Dekom, and I really don’t see how we are getting better!

Hey, Honey, Wanna Go Watch the Submarine Races?

During the Cold War, that tense stand-off between the Soviet Union and the United States that ended with the fall of communism almost two decades ago, produced a cat-and-mouse display of brinksmanship. We’d track their boats and planes; they’d track ours. We sent spy planes over their lands; they’d send “fishing trawlers” with sophisticated radar and tracking systems our way. But the most fun were there stealthy submarines that patrolled deep under water, the gigantic floating missile platforms, the Ohio Class for the US and the mega-huge Typhoon Class for the Soviets. Fast attack “anti-missile” subs also patrolled the waters off the coast of each nation, and more than one Hollywood epic flowed out of that scenario (“The Hunt for Red October” being one of the more famous efforts).

The 1962 Cuban Missile Crisis was the epitome of brinksmanship; the Soviets deployed land-based intercontinental ballistic missile in Cuba, clearly aimed at the United States. President Jack Kennedy almost took the U.S. to war over that one, but the Russians backed down. The “red phone” – a direct hotline from the White House to the Kremlin – was installed to foster communication and take down the threat of a nuclear holocaust. It’s still there.

Most of the U.S. population missed that one, and there are more than a few who never lived through (or were too young to experience) the fear and tension of the Cold War. For those old enough to remember “bomb shelters” and “nuclear attack drills” in school, perhaps the memories still linger. But Russian subs have not patrolled near the U.S. border for about a decade and a half, and most of us don’t even think about a re-escalation of tensions between the U.S. and Russia. After all, President’s Obama and Russian President Medvedev are buddies and talk all the time.

Yet in recent times, there have been some pretty sore spots in U.S./Russian relations. Russian strongman, Vladimir Putin (“Prime Minister”), is concerned, almost obsessed with Russia’s re-emergence as a powerful superpower and with a concomitant reduction in America’s perceived power. The military conflict between Russia and Georgia, the potential of a U.S. missile installation in Eastern Europe (even if it’s target was ostensibly in the Middle East), the use of the dollar as the denomination for oil transactions, protests over NATO, Russia’s withdrawal from the World Trade Organization talks, etc. are all signs of this growing need of Russia to be recognized, and as oil price reestablish Russia’s economic power, we are seeing signs that she wants to be recognized across the board. That she has had some spectacular military failures – like the botched launch of the Bulava missile from a Soviet sub in the Arctic in June – only seems to accelerate her quest for recognition.

Which brings up a change in “the way Russia acts” that can drive political “readers of tea leaves” bonkers. For the first time in a decade and a half, Russian Akula Class subs (the smaller, fast attack kind – not the big nuclear missile platforms of the Typhoon Class) – two of them – are back off our coast. The August 5^th New York Times: “According to Defense Department officials, one of the Russian submarines remained in international waters on Tuesday about 200 miles off the coast of the United States. The location of the second remained unclear. One senior official said the second submarine traveled south in recent days toward Cuba, while another senior official with access to reports on the surveillance mission said it had sailed away in a northerly direction.”

With the American deficit rising and the U.S. economy anything but strong, American prestige is also suffering as well. We are vulnerable. As the price of oil goes up, given her vast resources and petroleum reserves, Russia gains in economic power. Putin, whether through ego or some more sinister plot, appears willing to recreate that kind of brinksmanship we may have thought long gone. Time to keep our eyes open.

I’m Peter Dekom, and I approve this message.

Account Dracula!

The Financial Accounting Standards Board is the other “white meat.” It a private non-profit of green-shaders – accountants who set the standards for accountants in the U.S. (the international counterpart is the International Accounting Standards Board). I can feel your chins heading slowly for your chest, reaching for the browser, looking for something more bearable to read. Well hang on, because let’s face it, big public companies don’t hire accountants to make them look bad in public, even if they stink like a hot festering wound in the tropics! Ewwww!

So our government, and private standards-setting boards like FASB, are supposed to keep “truth in the equation” – to make the numbers real. Yeah, right. A government that really wants the consumer confidence level to rise and for people to believe we’re just peachy, beginning a recovery. So if we shade a little here... and twist a little there, how bad can it be? What’s the price on “hope” these days?

FASB has implemented a lot of new rules in light of the crunched economy. “One change softened the impact of when short-term investments such as securities lose value. Banks had been required to set aside money from earnings to cover such declines. Under the new rules, banks are not required to set aside money against the portion of a loss judged to be temporary. [like define “temporary” huh?] Companies were allowed to adopt the rule in the first quarter and required to adopt it in the second quarter. A study … found that 45 financial firms took advantage of the new rules in the first quarter to report higher earnings. [The study] estimated that the total benefit exceeded $3 billion.” The August 4^th Washington Post.

English please! OK, it means that the same banks with the same crappy investments can account in a way that makes them look more profitable, when in fact nothing has changed. Thus, you might look at that company, think it’s getting healthier, invest in the bank, and get hosed by the folly of believing the numbers you were reading! Hey, but it lets the Dept. of the Treasury use this financial information to convince us that the economy is getting better! So banks really like this rule.

FASB is thinking that applying a fair market evaluation of longer term assets, forcing banks to accept and declare a big write-down of toxic assets they’ve kept on their books at artificially high paper valuations. This would make the banks and the economy look bad. So surprise, banks with a little help from the government are resisting this change. “[B]anks could be required to set aside money from capital, or their reserve against unexpected losses, to cover the predicted losses. That could leave many banks with less capital than regulators require, forcing them to raise money.” The Post. Banks don’t like that much honesty!

And you thought Fairy Tales were Grimm? “The industry is preparing to fight the rule change aggressively. Many bankers blame existing mark-to-market accounting rules for deepening the financial crisis, by creating a cycle in which desperation sales dragged down market prices, forcing additional fire sales and further declines in asset prices… Banks already must acknowledge losses if a borrower stops making payments. But opponents of mark-to-market accounting question why a bank should be required to report the fluctuating value of a loan it intends to keep if the checks keep coming every month.” The Post. It’s like owing $4 billion dollars, paying the interest, but knowing when the loan eventually comes due, you can’t repay it or restructure that debt. Sooner or later, that debt will kill the debtor. You can lie and pretend you’re ok, hope you can pay the interest when due, but you know… you know… you are dead with the due date drops doo doo on you hoo!

Where are the feds in all this? Well, as FASB is about to amend a rule that allows banks to park bad assets in “other companies” (special purpose companies referred to in the biz as “Q’s”) to avoid showing them on their financial reports (the so-call “off-balance-sheet” rule), the government is squawking. The August 5^th the Deal.com: “The change could affect trillions of dollars of off-balance-sheet assets when they take effect in 2010. .. Federal Deposit Insurance Corp Chairman Sheila Bair told the Senate Banking Committee the notion that off-balance-sheet rules must be implemented while the economy is still restoring itself following last fall’s financial panic ‘gives me some heartburn’ and could hamper recovery of the securitization market.”

One of the reasons we lack “consumer confidence” is because we get lied to through numbers so much. We just don’t believe what we’re told. The entire financial meltdown taught us that. Politician’s reassurances notwithstanding, if I am getting paid less, or have lost my job, or my home value is less than the cash in my pocket, stop lying to me!

I’m Peter Dekom, and I approve this message.

Internal Medicine

The U.S. has free choice of private medical plans, but no generally available governmental alternative unless you fall into one of several limited categories (Medicare for the elderly, Medicaid for the poor, the VA for our veterans, some state programs, mostly focused on children, but some programs are more encompassing). We spend about $2.3 trillion a year on healthcare, 31% of which relates to administrative costs, and we have about 46 million human beings without health insurance. Healthcare costs have been given a substantial degree of credit for the demise of General Motors and Chrysler as well as dozens of other businesses; smaller employers are dumping the healthcare plans by the thousands as unaffordable. Medical costs bankrupt a million Americans a year. So everybody here wants universal healthcare, right?

I’m listening to radio programs, reading news reports, stating with credible voices that the elderly will be cut off from the benefits as they grow older, being allowed to die from whatever ails them… after all, President Obama told everyone that “end-of-life” healthcare is hugely expensive with limited comfort or medical benefit to the recipient. Costing about $20,000 a week, the question was raised if the nation could continue to support such formidable costs with limited results… costs that account for the bulk of all medical costs. Rumors of a future with hospice consulting in lieu of real medical treatment terrified large numbers of our older citizens. As you get older, your empathy for illness rises exponentially – you feel the ravages of time.

The elderly want to know they are not being put out to pasture, set out on an ice flow to drift into a timed end of their days. The anti-healthcare-reform groups have seized on this issue, but how much of this fear is justified? There is the fact that a vast number of elderly would opt for “comfort care,” which is focused on the quality of life, not merely extension by all means possible; is this all the administration is saying? Americans also want to keep their existing private plans, even with healthcare premiums doubling every ten years. But we want manageable costs, healthcare at all levels of earning (or non-earning power) and as much choice as possible.

In Canada, with the national government acting as the single insurer, all residents have free access to hospital and physician care. No deductibles. No co-pays. Provincial programs supplemental coverage with shared costs (with the patient) for pharmaceuticals, long-term care, in-home care and medical equipment required at home. Canadians see doctors more and use prescription drugs more than Americans, on average.

Canadian physician, Dr. Michael Rachlis, writing for the Los Angeles Times on August 3^rd notes: “On costs, Canada spends 10% of its economy on healthcare; the U.S. spends 16%. The extra 6% of GDP amounts to more than $800 billion per year. The spending gap between the two nations is almost entirely because of higher overhead. Canadians don't need thousands of actuaries to set premiums or thousands of lawyers to deny care. Even the U.S. Medicare program has 80% to 90% lower administrative costs than private Medicare Advantage policies. And providers and suppliers can’t charge as much when they have to deal with a single payer [insurer].”

Rachlis notes that all is not perfect, but it works pretty well all things considered: “The Canadian system does have its problems, and these also provide important lessons. Notwithstanding a few well-publicized and misleading cases, Canadians needing urgent care get immediate treatment. But we do wait too long for much elective care, including appointments with family doctors and specialists and selected surgical procedures. We also do a poor job managing chronic disease.

“However, according to the New York-based Commonwealth Fund, both the American and the Canadian systems fare badly in these areas. In fact, an April U.S. Government Accountability Office report noted that U.S. emergency room wait times have increased, and patients who should be seen immediately are now waiting an average of 28 minutes. The GAO has also raised concerns about two- to four-month waiting times for mammograms.”

Republicans have vowed to do everything in their power to stop the U.S. national healthcare movement – taking down healthcare is, to many such politicos, the same as taking down Obama. Ranks are closing. Filibusters are in the planning stages. Democrats are also divided... Blue Dogs (fiscally conservative) versus liberals. The healthcare coalitions are unraveling. Will they be put together again?

Industry lobbying groups are whittling away at the government’s “intrusion” into private healthcare. As President Obama gathered various “industry segments” to focus on “cost reductions” in anticipation of a new national program, apparently previously unpublicized government promises were made. The August 5^th New York Times: “Pressed by industry lobbyists, White House officials on [August 5^th] assured drug makers that the administration stood by a behind-the-scenes deal to block any Congressional effort to extract cost savings from them beyond an agreed-upon $80 billion… [T] the industry successfully demanded that the White House explicitly acknowledge for the first time that it had committed to protect drug makers from bearing further costs in the overhaul. The Obama administration had never spelled out the details of the agreement.”

What other secret agreements were made? Will a plan be adopted? Will it cover everyone? Will the “protests” that were being organized by plan opponents derail national healthcare and perhaps even the President himself? What exactly do you want to see happen?

I’m Peter Dekom, and what do you want?