Universal Translator

Saturday, April 30, 2011

Why Medicare Kicks the Crap Out of Paul Ryan's Voucher Plan

So I was talking with a friend of mine earlier today about health care, Medicare, and the Paul Ryan plan to privatize Medicare. One important point came up that I think should be discussed more because (i) it points out how dangerous the Ryan plan is to everybody, including those already 55 or older, and (ii) it provides a simple illustration why a single-payer system (i.e., "Medicare for All") would actually do more to curb rising health care costs in this country than any other proposed health care reform. And that point is this: Medicare is entirely voluntary, not only for the patients being treated under the program but also for those physicians who provide the treatment.

The way things stand, a lot of health care providers (physicians, private hospitals, HMO's, etc.) don't really look forward to treating patients covered under Medicare. This is because the government has limits on what it is willing to pay for any particular procedure, and these payment limits make treating patients covered by Medicare less lucrative than treating patients who have a private insurance plan. However, many - if not most - of the country's health care providers cover Medicare patients anyway, simply because there are so many people in the country reliant upon Medicare. In other words, the health care providers make less per Medicare patient than they would treating patients covered by private health insurance, but there are so many Medicare patients out there who need treatment that it doesn't make financial sense to turn them away: "How can I sell these [health care services] so cheap? Volume!"

Now as to one reason the Ryan Plan is so bad . . . consider what happens to those currently 55 or older who would still remain eligible to participate in Medicare as it exists today. Everybody else would be forced to purchase private insurance in the market when they turned 65; Ryan's Plan would have the government give you a voucher to help defray the costs of that private insurance, but the voucher would be capped and -- even assuming you could find an insurance company willing to insure you at a rate you could afford after you turned 65 -- the voucher would be worth less and less each year as health care costs went up. Which means that, year after year, seniors would be forced to pay more and more just to have insurance coverage (which would not include co-pays or deductibles, which means the cost of actual health care would increase even more).

But for those 55 and over today . . . eventually, their even older cohort (say, those who are 70 and older right now) would die off. Which means that, with no additional people joining the Medicare ranks, the pool of Medicare patients needing treatment would inevitably shrink. At some point it would not be unreasonable to expect health care providers to refuse Medicare patients outright; they would be too small a pool of patients to justify the lesser charges the health care provider could expect. Which means, of course, that a significant portion of even those the Ryan Plan says could remain with Medicare as it is now can still expect, before they die, not to have access to any entity willing to treat them under that plan.

Hell: Perspective and Eternity

Well, I'm a bit late getting to this topic, but it is one I have spent some time thinking about and it was discussed a bit over last Easter Weekend, so I thought I'd spend a little time opining. On the episode that aired Friday before Easter, Chris Matthew's Hardball apparently convened a roundtable to discuss whether or not "Hell" exists. As Digby pointed out over at her blog, this is an extremely silly topic for a "news program" to spend time debating, but there you are.

Then, on Easter Sunday, The New York Times ran a column by Ross Douthat arguing - as I understood it -- not only that Hell exists, but that Hell must exist because if there were no possibility of error, no potential for humans to be punished for making the wrong choices, then human endeavor would have less meaning: "If there's no possibility of saying no to Paradise then none of our no's have any real meaning either. They're like home runs or strikeouts in a children's game where nobody's keeping score."

This type of reasoning underscores how difficult it is for us humans to tell ourselves narratives that are not inherently solipsistic. We have virtually no capacity to view Life, the Universe, or Anything other than on our limited scale, and that leads to some pretty skewed thinking.

Friday, April 22, 2011

A Modest (Financial) Proposal

I heard on the news that President Obama has instructed the Justice Department to conduct an investigation into the oil commodities market to determine whether the recent run-up in oil prices is the result (or partly the result) of market manipulation and/or speculating. I don't really have an opinion about this one way or the other -- at least for right now, I don't have sufficient information to form an opinion -- but it did remind me of something I've been thinking about for a while now.

Might there not be a recognizable benefit to eliminating (declaring illegal) all "naked derivatives trading?"

A large part of why the financial crisis became so bad, so big, was "naked" trading in Credit Derivative Swaps. Now, a "CDS" may sound complicated, but it essentially is just a type of insurance.

For example, suppose you own a bond (or a "market-backed security") or any other type of financial instrument that guaranteed a future payment in, say, 5 years and that had a face value of $100 million. Just as with regular Americans and their homes, this would be a pretty significant asset to have in your portfolio, and so you might want to take out insurance on it -- just the way regular middle-class Americans do on their homes. So, you could go to AIG, just for example, and purchase a CDS. And in exchange for a annual premium payment of, say, $2 million, AIG would insure that if the bond subsequently proved to be worthless AIG would pay you the full face value of the bond.

Five years of $2 million premium payments would knock your net payout on the bond from $100 million to $90 million, but you would have the security of having eliminated the risk that you might lose the entire $100 million. Not bad.

But "naked" derivative trading allowed Walls Street firms who did not own underlying bonds/mortgage-backed securities to purchase insurance on those same bonds anyway. AIG, which apparently believed the ratings agencies' AAA status on these things, figured the bonds could never fail and so thought the premium payments it was racking up constituted "free money." (It apparently never occurred to AIG -- or, more accurately, to AIG's subsidiary, AIG Financial Products, which was really issuing the insurance policies -- to wonder why all of these Wall Street banks, supposedly the brightest of the brightest, were willing to give it all of this "free money.") Accordingly, AIG issued insurance policy on insurance policy covering the same financial assets, happily taking home millions and millions each year in premium payments.

But think about what this means. Suppose AIG issued 20 different policies on the same $100 million bond. Now, instead of being on the hook for a potential $100 million loss if the bond defaulted, AIG would be on the hook for $2 BILLION. This is a substantial increase in liability, all of which turns on whether one single event occurs -- the same bond turns out to be worthless. No matter how unlikely you may think a future event is, the more money you gamble against that event occurring the more disastrous it will be for you if that event does, in fact, come to pass. This is exactly what happened when the music abruptly stopped in the game of financial musical chairs the big investment firms were playing a few years ago.

* * *
But really, what social purpose did it serve to allow investment banks to purchase insurance policies on financial instruments that they were not themselves invested in? How is this not just sheer gambling?  Place a $2 million bet - once a year - with the chance of winning $100 million. If the banks actually owned the bond in question, then purchasing insurance on the bond makes sense, because they would just be limiting their risk.  But if you don't own the bond, then you are just making a gamble.

Generally speaking, I am not allowed to purchase fire insurance on my neighbor's home. For one thing, there is no social value to my doing so. For another, it does tend to give me a motive to engage in a little bit of arson.

And doesn't it seem to you that something similar may have happened with the financial markets? After all Bank of America was one of the banks most heavily invested in CDS's, which insured mortgage-backed securities that consisted of a whole lot of subprime mortgages all bundled together. Is it a coincidence that Bank of America had a substantial interest in Countrywide Mortgage, the single greatest issuer of subprime mortgages in America?

Similarly, we know that Goldman Sachs got together with one of its richest individual investors and created a mortgage-backed security that consisted of only the worst of the worst mortgages they could cherry-pick. These mortgages were expected to fail. And then the investor and Goldman Sachs sold the security they had created to other investors, purchased CDS's on that security, waited for it to fail, and then demanded full payment on their insurance policies.

In fact, the more you look at things like this, the less it looks like gambling. A closer analogy would be paying an electrician to install wiring in your new home, trusting he has done a competent job because you certainly are not competent to judge the wiring job yourself, and then -- when your house burns down due to substandard wiring -- watching as the electrician cashes in on the insurance policy he took out on your home.

Tuesday, April 19, 2011

I Suck as a Father Figure

I am a big fan of serendipity.

Once, during my first year of law school, I went to the law school building for a night to study.  I didn’t really want to study, but I knew it was important that I should.  Still . . . I was looking for a reason to blow off being responsible and to do something fun.

When I walked into the lobby I saw a table set up to greet people, and I saw a friend of mine manning the table.  I figured this would be an easy way to waste 10 to 15 minutes, shooting the shit with my buddy, and keeping me from actually having to walk into the library to study.  However, about 5 minutes into my shooting the shit with my buddy, Linda Fox walked up and commandeered our attention.

Now . . . you have to understand about Linda Fox.  She was a third-year law student (I was a first-year) and was easily the best looking woman in our school.  Every male student knew who Linda Fox was, and I am pretty sure that Linda knew the power that she had over the rest of us.  She certainly didn’t waste words when she showed up that evening.

“Where am I supposed to go to give the Spain Study Abroad lecture?” she demanded of my friend, interrupting me.

My friend directed her to the first large classroom on the right.

“Thanks,” Linda said, and stalked off.

I watched Linda walk away, and then I looked down at my friend.  “Dude,” I said, “I think I’m gonna see what she is talking about.”

So I followed Linda into a meeting where she described William and Mary’s “sister program” with a university in Madrid.  I am sure she made it sound great, but quite frankly I was too busy losing myself in Linda to really pay attention to the words coming out of her mouth.  Now, I knew that she would not be in the program herself – she was a third-year, and would be graduating – but she made studying in Madrid seem really, really fun.  Also, the U.S. was going through a recession at the time, I was having a difficult time trying to find a summer job in Miami, and the idea of going to Europe for a summer on borrowed money seemed not so bad.

In the end, I would do exactly that.  In a lot of ways, it was the best summer of my life, and it all started because Linda Fox walked up and rudely interrupted me, and then I followed her.

Monday, April 18, 2011

The Financial Press (and the Fed) Doesn't Work for You

One of the things that really bugs me about this country is our (relatively) new fascination with financial news.  What bugs me about it is that you can tell from the way in which the news is reported that the American system isn’t really working for the benefit of all of us.  It is really working for the benefit of those of us whom it already has rewarded.

For example, pretty much on an hourly basis NPR will give you an update of what “the market” is doing today.  Stocks are always up or down, but they never, never stay the same.  Except, you know, they do.  If the DOW starts at 12,500, and ends at 12,515, then nothing much has happened.  15 points out of 12,500 is an increase of about 1/10th of a percent.  It is basically statistical noise.  Nothing really has occurred, it was a slow day on Wall Street.

But that isn’t how it is reported.  It is reported as good news:  the market was up today.

And that is another thing that bugs me about our financial reporting, the fact that having the market go up is always considered to be good, while if it goes down, that is always considered to be bad.  This is how reporting on stocks is presented, this is how reporting on housing is presented.  Just 3 weeks ago I was listening to the radio and the announcer exclaimed dolefully that housing prices for the past month were weaker than expected.  As if higher housing prices were automatically understood to be good news, and lower housing prices were equally automatically understood to portend badly for the economy, and you would be a fool and a communist not to instinctively know that.

Except this is insane.

Sunday, April 17, 2011

A Brief History of American Class Warfare

“They only call it ‘class warfare’ when we fight back.”


“There is class warfare in America, and my class is winning.”

                                                            --Warren Buffett

America likes to think of itself as a “classless society.”  One of our founding myths was that America was created so that all men would be free and equal before the law.  (Women, of course, were a different matter.  As were the slaves, Native Americans and those still working as indentured servants.)  The way the story is told today, our country started out as and continues to be a place of unbounded opportunity where any person, by sheer grit and talent and hard work, can pull himself up by his own bootstraps and amass a fortune.  For very similar reasons, we still tell our children that – in this country – “anybody can grow up to be President.”

It is a comforting story, but it is also a lot of nonsense.  It is also a fairly recent invention, one that I think was created for the express purpose of papering over the real economic differences between U.S. citizens.

Indeed, while it may be one of our “founding myths” it is not a myth that has been around since our founding.  Throughout the 18th and 19th centuries every American citizen would have been keenly aware that one’s status – and legal rights – turned largely on how much wealth one had.  In many – perhaps all – of the original states, even the right to vote, the most fundamental right in a democracy, was limited to those men who owned a certain minimum amount of land or had a certain minimum annual income.  The poor were explicitly and literally disenfranchised.

And this state of affairs, the rights that welled up not from innate ability or merit but instead from sheer wealth, continued well into the 20th century.  Nevertheless, the early part of the last century saw great strides made by those who fought passionately on behalf of American laborers, and who recognized that the interests of laborers and employers did not coincide.  This progress was made despite the fact that class conflicts often turned bloody and violent, as employers (very often with the help of the public authorities) took action to force laborers to work under terrible conditions for little pay.  But the story of this progress is mostly swept under the rug and, less than 100 years later, is largely forgotten.

Saturday, April 9, 2011

Refusing (Barely) the Red Pill

Well . . . that was interesting.

I waited up until a little past 11:00 last night, to find out what was going to happen with the budget and whether we’d have a government shutdown.  I had geared up for a shutdown, although I recognized that the odds were at least even that nothing of the sort would ever occur.

But, in a weird way, I have to confess to a bit of a letdown that it didn’t happen.  Not because I wanted to see the government shut down – God forbid.  But because it makes understanding where we are now, politically, as a nation, just a little bit more difficult.

By the time the last few hours, yesterday, were ticking down, the only real dispute was about federal funding of women’s reproductive health services.  And, no, that is not a euphemism.  And let me repeat that – the federal government was in the process of being shut down, because of a dispute about the funding of women’s health services.

Let’s back up.

Friday, April 8, 2011

Paul Ryan's Real Plan

So, I was looking through some other blogs and reading yet another pundit who made the same (by now) repetitive point: Far from being "courageous," "gutsy," "adult," or (my favorite) "serious," Paul Ryan's budget proposal is a pointless piece of hard-right GOP whimsy. It is based on fantasy numbers, does nothing to actually address the deficit or balance the budget, but consists of a huge giveaway to the rich and the corporations, while paying for that giveaway by taking chunks out of the elderly, the disabled, the poor, the children, the working class and the increasingly middle-class.

I've heard all of these criticisms, I've read the arguments (see Krugman's column in today's NYT), and based on the numbers presented and the information left out of Ryan's plan -- for example, tax cuts are specified, but the loss of revenue those cuts result in will be made up with by unspecified "loophole" closings -- I pretty much agree with these criticisms.

What is becoming more and more clear is that the more one examines Ryan's so-called budget "proposal" is that it is a non-starter. There is no way anything close to this could ever get passed through the Democratic-controlled Senate, much less get by Obama's veto pen.

So why would Ryan author such a dead-letter bill? If he is actually trying to address budget issues and the deficit, why issue such a sloppy, wet, full-tongued French Kiss to the GOP base, when he must know it is going to go nowhere?

Because Paul Ryan is planning to run for President in 2016.

I am sure there is someone else, somewhere (maybe a lot of other someone elses out there, in a lot of other different somewheres) who already has made this prediction. But I've not seen it yet, and it just occurred to me, and so I figured I'd get this post up now and maybe, if I'm right, four years from now when he announces I'll look like a genius.

But . . . think about it. He's young, he's not a bad looking guy. He's a family man and the press absolutely loves him. And I mean, like, really loves him. I got a phone call the other day from a friend of mine about this:

"Dude, you would not believe the kind of shit I'm having to watch on my TeeVee about this Ryan guy. I just listened to some supposed political pundit gush about how much this guy works out!"

(It reminded me of an article I read some years ago about Petraeus, and how much he works out. Back when Petraeus was the next big Daddy Thing for the press to gush over.)

"Seriously, dude," my friend asked me, "is this what our political press has come to? I gotta know about this guy's fitness habits?"

But with the promulgation of this new Very Serious, Gutsy, Provocative, Adult plan to truly screw over all the rest of us in service of his rich overlords, Ryan has gained instant credibility with the Punditocracy. Now they can gush over his gravitas, while still maintaining that special authoritarian Strong Daddy man-crush that they only let themselves develop for Republican candidates who prove their seriousness by their willingness to screw over the poor and defenseless among us. The ones who truly don't have a voice in our politic society.

(I swear, the political press in the United States reminds me of nothing so much as those lickspittles from Middle School that we all sneered at, the ones willing to side with and even suffer a little abuse at the hands of the school bully, if only it meant that they could consider themselves someone among the outer fringes of the bully's hangers on.)

Mark my words . . . Ryan released this sloppy kiss to the Republican base because he knew the Villagers would eat it up. And they have. And he is eyeing a presidential run in 2016.

Please write to congratulate me on my prescience, four years from now when he announces.