Sunday, January 1, 2017

For-Profit Healthcare & Debt: A Bad Combination

"A hospital bed is a taxi standing still with the meter running."

--Groucho Marx

Since when did the term "free" come to be associated with "affordability"? It happened formally when Romney tried to link the term "affordability" with "free-loader."

Years ago when Tenant, Columbia, HCA and others were building out their networks, they purchased hundreds of local community hospitals, which were viewed as undervalued assets. These large health conglomerates issued bonds to finance their acquisitions, and the first post-acquisition step would be to sell the land the community hospital was on to one of their REITs. The community hospital then would begin paying rent to the REIT, and that in turn ultimately financed the acquisition. Community hospitals were effectively refinanced and mortgaged, instead of being free and clear of debt burden. No longer did the community hospital operate as an entity standing on fully paid for/self-owned land. This, in turn, introduced unit-based pricing for each hospital bed (which was also alligned with Medicare Part A & B reimbursement rates). Historically, before the massive re-consolidation by Wall Street's Financialization push, Community Hospitals paid no rent and were not for-profit, generally. Why is this (and De-Mutualization) important?

It turns out the biggest beneficiaries of Medicare are Tenant, HCA, private hospital owners, physician groups, et al. How can it be--with vacancy rates so high in hospitals--that healthcare costs also remain extremely high? It seems that the rules of supply and demand do not work when it comes to hospitals. What's behind that?

Consider 'capacity utilization.' Without debt, excess capacity poses no problem. Indeed, it is only with the addition of debt that capacity is commoditized. Consider a local fire department. Paid staff resides at stations 100% of the time, regardless of emergency conditions. 100% state of readiness. Payroll and basic operating expenses are ongoing, as a relatively minor percentage of total tax revenues collected. Now imagine if local tax revenues diminished and the fire station had to pay a mortgage: it would then be forced to convert it's unused (excess) capacity to a cost, and in turn focus on raising revenues to support its excess capacity, in addition to these other basic costs. This is exactly the case with hospitals (and many other large U.S. businesses). Also, consider the corollary to "excess capacity," which is under utilization. Basically, there are costs whether or not the system is accessed. In a wartime scenario a field hospital at times is fully utilized. Other times, it's dormant. We really should not treat these assets in the same way we treat typical plant and equipment.

Over the past 30 years nearly all Wall Street wealth was the result of leveraged debt and tax loopholes: paying for corporate re-financings using interest deductions and phantom loss carry forwards. I believe that in addition to the mortgage securitization debacle, we will soon realize--from a greater, long-term public good standpoint--how misguided Wall Street has been in its use of debt. Despite various rationales about "unleashing pent-up equity" and applying it to good use, the public policy implications of Wall Street's actions are essentially criminal. We've mortgaged our basic infrastructure, and it's a real national security issue.

Consolidation in virtually all industries was financed by securitized debt. And indeed, without such debt many businesses are profitable and cashflow positive--they're able to generate a profit in excess of operating and payroll expenses. (Debt-free health, by the way, should no longer a pass to pirate a company's equity.) All of our industries are and have long been suffering from too much debt and unfortunately, there currently exists no mechanism to put entire industries into Chapter 11 restructuring. (Even if California or the Big Three U.S. Auto Makers should require restructuring, there's currently no "easy" way to do this.)

Much of this restructuring would be unnecessary had Wall Street not squandered valuable equity to begin with. (Perhaps a Council of Financial Reconciliation should seek return of ill-gotten gains?:-) Which leads us back to hospitals and health care in general. The rationale that drove consolidation were scale efficiencies...the ringing out of redundancies via mergers and acquisitions. Such "efficiencies" have not been without problems. Yet diminishing redundancies via merger/acquisition still leads to reduced competition.

We have two interesting extreme points with regard to capacity utilization; (1) insureds that never use the system (yet pay premiums); and (2) uninsureds that never use the system. Between these two extremes we have a system that has varying degrees of utilization. How rational are pricing systems for services throughout the system? How is pricing set? (A practical example: a few years back my wife was in hospital for three days. Our bill was $22,000. Our insurer paid $9000, and we paid $1500, which was our deductible amount. The participating provider hospital charged off the balance and my guess is the hospital could also apply this write off against its taxes. The hospital took its aggregate cost--including its debt payment, and divided it by its total number of beds and applied that daily sum multiplied by 3 days. Yet consider all the empty beds. Absent the debt service, no way the charges would be so high.)

Consider the analogy of a small town fire department. Since it cannot afford to pay full-time salaries to a staff of firefighters, many towns resort to part-time volunteer staffs. This is one way of dealing with excess capacity. This would not work in the health care field, but if we look at towns and cities throughout the state of California, many have too many "professional" full-time police and fire fighters...more than the economy can support. How to transition these excess workers to part-time, on-call, as-needed? With respect to health care, reorganization can both bring down costs and unveil the current waste (as excess capacity) within the current system. A team approach requires fewer workers.

The Health Care system overall needs find more rational ways to make the prepayment for care--which to a large degree insurance is--affordable. As it stands, medical costs include too much debt service--not just charges for basic labor and materials. Not everyone uses the system all the time. So, what exactly determines fees for service rates? How much of it is debt service? Competition hasn't worked due to over-consolidation--which is why now a public option is needed. Also, in terms of an ethical justification, the U.S. must invest in its people, for the sake of national security, dominion, and sovereignty. This extreme individualism and market-determinism has destroyed our industrial base.

Prescription: Health care for all is not just a moral ought. Practically, it's about a society's committed investment into each of its members. We do this with public education, not as a moral imperative, but as a practical guidance. Social wealth is enriched by contributions of its individual members, and public investment is key to this. Health care is no different.

Finally, when healthy people pay insurance premiums they are not accessing the system but are paying for future capacity that will be there if and when they need it. A good place to start would be $100 per month for each adult, and $50 per month for those under 21. Add to this small co-pays and a small annual deductible. Make it a baseline mandatory coverage and add in subsidies for those unable to pay. (Note: prior to Anthem's purchase of Blue Cross from Well Point, we were paying $4800/yr.--family of 4--with a $5000/yr. annual deductible. Now, the rate is $7200/yr. with a $12,000 annual deductible. 2009)

Alas, we require a system designed around wellness, with incentives to patients only to use the system when necessary. Massive debt restructuring must be part of any economic stimulus package (and health care reform bill)... massive debt write down and/or conversion of debt to equity. A stimulus should focus on technology infrastructure, debt elimination and possibly downsizing or eliminating insurance carriers from the equation. Also, given the nature of medical capacity, fee for service may not be the optimal approach. Do we need to reduce/remove much of the [institutional] debt service from health care, and place a moratorium on debt financings pertaining to expanding health care capacity? If we limit the private profit from the issuance of public debt, will we be taking a step to slow corporate welfare for institutions (and the folks that run them)? The answer is unclear. Yet considering the serious impact of debt default by large institutions it's time for society [and heretofore sleepy regulators] to take an interest in these private business behaviors. The Corker proposal for the automakers [back in November] turned out to be prescient and may have broader applications in the future. Will specialists be forced to join groups? We'll see.

The bottom line is...5% of patients use 95% of capacity. Hence, build ample capacity to cover growing demand, and get rid of fee for service. Operating costs, less debt service equals affordable health care. Today, laissez-faire has resulted on a virtual monopoly with 5-6 major providers nationally.

Also, hospitals are open 24/7 regardless of traffic. My two kids do--at most--a couple of well-visits a year. Why must our family pay $12,000 per year for this? Makes no sense. Yet this is exactly how the system now works. Not-for-profit vertical integration could change this. The private for-profit system--a result of milking Medicare--now incorrectly charges for capacity distribution, and actually penalizes those who are well. They can only profit by building in systemic short-term memory loss and billing for new procedures all the time, many of which are unnecessary. This for-profit system caters to the total basket cases. The fact is, there is currently excess capacity in the U.S. Health Care system due to gross inefficiencies (having to do with too many specialized discoordinate private practice physicians) that must excessively outsource for too many of the services that should be able to be offered in-house...and could be offered in house were they in a group. So many atomized doctors, each paying rent, a staff, etc. Why? Why not more consolidation? Indeed, absent Medicare the private practice would have long ago become extinct.

Dec. 2011

Orig. 9/2009

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Friday, July 31, 2009

Is America Bankrupt?

(FYI: America is bankrupt...but is unable to acknowledge it yet, and has no systemic way to address this fact. Chapter 9 of the Bankruptcy Code is not appropriate for the scale. It will occur in pieces.)

Following Enron's [and Worldcom's] demise Congress enacted Sarbanes-Oxley (SOX) to ensure the transparency of management practices for public companies. Enron's financial engineers had created off-book derivatives that worked just like an off-shore toilet: they would dump all their "phantom" debt there, but unfortunate for Enron's executives, the flusher didn't work. The debt was actually real. Enron was able to hide its debt so long as its energy revenues were growing. Once that stopped the house fell down.

Whether it be SOX, GAAP or FASB, many if not most mortgage-backed securities have not been reported or posted through any central clearing, so that no one knows for sure how much of this debt there is, actually. Also, their valuations carry heavy future value and discounting to net present value is not a clear exercise. There's no central regulatory clearing for much of this paper. Which in large part has led us to this current crisis. And so we ask whether such unregistered securitizations amount to "fractional reserve banking." Fact is, "money" is only created when there's an interest rate yield...I loan you $1, you repay me $1 ten cents. When short terms rates are 0%, as they are right around now, no money's being created, and most one's making any real money. It's high time we question the practice of mortgage securitization itself.

The global system, as exceedingly nuanced and complex as it is, could do with more accountability rules and transparancies. The very nature of securitization itself is to create "off balance sheet" leverage. Hence, many of these securities never found themselves registered on any publicly accessible balance sheet anywhere, hence by some estimates there's an estimated $62 trillion of CDOs, CDSs, SIVs and other variants of such securities floating around the globe's pensions and in other institutional portfolios (thanks to the Gaussian copula formula). Indeed, subprime mortgages showed the highest rate of default (followed by the Alt-As), and these were largely made by non-traditional lenders that entered the market just after 9/11 and practiced asset-based (versus income-based) lending. They were able to do so when the Fed lowered interest rates dramatically after 9/11. The result was a now infamous asset dollars flowing into highly demanded/short supply assets. (Absent the asset bubble thanks to cheap dollars, might Iraq never have happened?) The Fed in essence simply post-poned the day of reckoning, which is now upon us. (One wonders if securitization itself is the problem, and needs to be reconsidered and its process redesigned.)

Now, many mortgage banks and lending institutions are reluctant to "take the hit" and seriously write-down these over-priced assets still on their books. California Congressman Darrell Issa believes such institutions should be forced to write down the values of these over-priced assets, albeit gradually. This is one variant of "mark to market," which with behemoth institutions is likely a better policy than relying on yield curve determinations made by private investors. He suggests that servicers and mortgage holders be compelled to allow short sales to the current default borrowers now living in those homes, perhaps by amending current bankruptcy law. FDIC head, Sheila Bair agrees. "Modify and issue 1099's for the difference," she suggests. Obama appointee, Professor Elizabeth Warren concurs with Issa that "there be a change in the bankruptcy code--it will force a wake up call," she says. One in 7 mortgages are soon to be in default, according a recent GAO Report. The bottomline is, carrying non-performing overvalued assets on the books--hoping for a market rebound--is denial, wishful thinking, and delaying any recovery.

Opponents say such steps will pose a moral hazard and give incentive for good mortgagees to default. They say default borrowers shouldn't be rewarded, no matter what. Yet is there really any intelligent alternative? We are living in 'Chi-merica' (Chindifying America). America's manufacturing supply chain for many industries is now in China. And many services are now being outsourced to India. Here, all the tax dollars spent on public roads and bridges over many years don't show up as off-sets on any grand balance sheet--instead, they've been expensed. (Which explains why conservatives over the years have been so eager to 'privatize' public assets.) Our global capitalist system has over-relied on asset appreciation--not real net earnings--to support inflated pension schemes and current levels of debt service. Hedge funds and unrestricted foreign ownership of U.S. assets have exposed vulnerabilities. Debt issuance rationales have typically relied on future earnings projections, which in a flattening earnings global scenario cannot and will not pan out. In China, all businesses must have a domestic partner--and only citizens can own real estate, which even so operates on a 100 year land lease. Mexico has a similar policy.

Yet, in the final analysis, America's paper is not worthless so long as willing ambitious American workers have steady jobs (to repay U.S. treasuries...IOUs). The real wages of U.S. workers, I submit, have been "Chinafied." In other words, a well-trained knowledge worker in China earns the equivalent of about $300 U.S. dollars (8 RMB/yuan = $1 U.S. dollar) per month. Why should a business analyst in China earn $300/mo., while a business analyst in the U.S. earns $5,500/mo.? (Indeed, it is an apples-to-oranges comparison given the many government subsidies in China that allow for the payment of lower real wages to workers, and also their near zero legacy/benefits costs.) In the U.S. many once privately held liabilities have been transferred to the public sector (i.e. Pension Guarantee...). For the most part, there's no real qualitative or productivity discrepancy, but rather "distortions" in the earning/price indices, which are now being "played out" and will continue until assets values (and overall debt) adjust to real net wage levels (resulting from globalization). Is there a global bottom, in this high volume, low margin world? Is there such a 'reality' as global equilibrium? The oceans have their tidal about global capital flows? The distortions, largely, are a function of credit and excessive cost of money.

Two of 5 jobs until recently were connected to the real estate industry. This explains in part high recent unemployment figures. Many workers wonder: How does the stock market impact present and future employment? Many employees of public companies are just now realizing that as share prices of their companies drop, the debt-to-equity ratios of their companies goes up. In other words, leverage increases as share prices drop. Companies tend to borrow in relation to their net worth, not unlike home borrowers that refinance. Equity [and value] tend to be market-driven. (Home prices--like shares--are a function of demand, which equals cost/ availability of money and credit, job security--which is a global phenomenon nowadays--and comparative factors, i.e. supply of qualified buyers, inventories, etc.). Hence, diminishing share prices increases the likelihood of lay-offs. Indeed, as the equity side of companies drifts downward, proportionally more dollars are required to service existing debt. Which is another reason why consumers lack confidence to go out and spend. They're concerned about pink slips in January of next year. Globalization and outsourcing have indeed brought downward pressure on wages of U.S. workers. And the current account deficit (another all-time record high) affirms the fact that America as a service economy must re-examine its ability to generate real wealth. Many services have been reduced to commodity status. How about design and innovation?

If a large chunk of America's treasuries--held by China--were to end up near worthless paper (never mind the small amount of remaining gold in Fort Knox), China is in deep trouble. In fact, the entire global fiat money system is based on faith. Given China's diminishing surplus it's able to buy less U.S. paper. The fundamental question, given our excessive debt, is: what, really, is 'money' our era of fiat money? (The Economics 101 definition of M1, M2, M3, M4 no longer seem to be entirely accurate.) Is money a function of 'time,' i.e. $300=x/hrs. of labor? Think about it, after a $700+ billion bail-out (with more on the way) what is 'money'? What is 'securitized debt,' really? (It's an entirely different question than...what is the nature of money/securitized debt...? The CBO estimates that interest on the national debt will soon reach $750 billion per year by 2019. We're now in what amounts to a "liquidity trap," without sufficient real earnings, hence demand. The corollary of our debt debacle is...the very credit system itself. Are there viable alternatives to a credit-based system (and our global credit issuing institutions)? For years many analysts have pointed to "interest" as the root of all imbalance...the interest charged by the Fed to the Treasury in exchange for issuing currency. Is this a rational point? And, finally, to account for the asset base of public sector: how much, say, is a federal highway worth...on some balance sheet, when it's not revenue producing? (We haven't really valued these public assets as offsets.)

One thing's for sure: the "Laffer Curve" of supply side economics--once hailed as "voodoo economics"--has proven itself to be fundamentally flawed. It postulated that markets self-equilibrate. But they don't. And there's an additional, serious question: are neoclassic economic models up to addressing our current woes? A market is simply a clearing: it reconciles supply with demand. It does this based on various rule sets, as perameters. The deregulation that began in the Reagan-era gave rise to laissez-faire and Enterprise Zones, and they really haven't worked. Why? Because they're "top-down," disconnected big business approaches. People dream of becoming rich, but they must eat and feed their families first. Altitude has a way of blinding the elite, just as too much wealth can dull one's sense of urgency needed for entrepreneurship. These approaches generally don't properly seed things, and instead rely on various "magical" mis-conceptions of entrepreneurship, as though wealth is created from ideas alone. Recall monetarism and the Chicago School in Argentina? It didn't work there because it suggested that incentives alone motivate, which is not entirely correct. Wealth and capital formation have tended to stay at the top with these approaches, benefitting large and mid-cap enterprises. (Perhaps micro credit will become part of the solution, even in wealthier states where there are huge wealth disparities.)

Should today's policy solution be more in line with addressing Keynes (aka "Liquidity Trap") or Fisher (aka "debt deflation" or now stag-deflation)? Goal: to restore purchasing power (aggregate demand)--to create both jobs and community reinvestment pools to create local "bottom-up" capital formations--by reducing dollars now going toward debt service is one method to be considered. The community credit union model--not just a redevelopment agency--would be another innovative approach. Extreme conservatives will view this as "socialism," but in fact, markets like people are imperfect and prone to disequilibria and require periodic major recalibrations. America should likely have implemented an industrial policy years ago, like China, Japan and Europe did. Such strategies have not exempted them from business cycles, but many of their industries now require less retooling than ours do. (Let's not forget Vice President Cheney's infamous secret "Energy Policy Meeting" with Ken Lay and others back in 2002. Some of such policy--or lack thereof--is responsible for Detroit's woes today.) And also, America's current account deficit is proof that outsourcing, NAFTA, and WTO cause system-wide problems when "fair" trade is not in fact "fair"--indeed, America needs reciprocity in terms of honoring and abiding by "fair" trade agreements. Hyman Minsky and Irving Fisher come to mind, in their analyses.

Extreme conservatives, like former U.S. Senator Phil Gramm, have long thought that private managements of publicly traded companies "knew better." Now taxpayers are faced with serious consequences of these "private" mis-managements, accountable only to their shareholders. Serious consequences such as a looming inflationary depression. "Too big to fail," has too often meant "unable to coordinate an entire industry for radical restructuring." By the way, where is Big Oil in terms of the auto industry? Silent, to be sure. At the 2008 World Economic Forum in Davos, Switzerland, George Soros called for a "Global Sheriff" (aka a Currency Board) to monitor various inefficiencies in financial markets. He was laughed at for suggesting such--never mind the IMF's bleak performance record in recent years. As it turns out, however, he was prescient, and correct in his analyses starting as long ago as 12 years. In reference to re-examining assumptions, he says, "I contend that financial markets are always reflexive and on occasion they can veer quite far away from the so-called equilibrium. In other words, financial markets are prone to producing bubbles."

In his book "Financial Darwinism," Leo Tilman suggests we need "greater risk transparencies." Will any of us be surprised if the State of California is the next "shoe to drop"? A pre-packaged repudiation /bankruptcy-like scheme [managed by the Feds] may be the only way to mitigate its huge CalPers and Ballot Initiative legacy costs. That, or a referendum to renegotiate with more realistic actuarials in mind. Some huge major bankruptcies loom...due to unfunded pension liabilities and excessively high debt service requirements. And tough choices will be made...between funding for schools and other present services, versus excessive public pensions.
As Hyman Minsky noted, not all debt is equal. Hence, it may make sense, as the treasury issues new debt, to refinance and replace some of the older legacy debt. Debt, unlike dividends, is tax deductible. Still, a major debt-to-equity conversion is needed (which China must help with) if any stimulus package is to work. Once again, we need to restructure debt, seriously, even if it means discharging and repudiating a great deal of it. Debt holders will need to be willing to accept equity in replacement of their debt, no matter how painful. This, in order to avoid total default.

We rely on debt financing for everything, and FMV usually determines ratios. Example; 80/20 mortgage financing, but 80/20...of what? Perhaps FMV-based ratios are not prudential enough.
Perhaps "Cost-plus" methods should replace FMV-based ratios?

(We've proven that as a civilian socius, we are unable to run ourselves. Perhaps the military will be needed to run things. Or else, perhaps we'll descend into a Balkanization rules by gangs, not unlike a prison hierarchy.)

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Sunday, May 31, 2009

Economic Stimulus

During the Clinton years much was said about "bridging the digital divide." On Charlie Rose recently Leo Apotheker, CEO of German software giant SAP referred to enterprise-wide computer networks as a "nervous system." In listening I drifted back to the time just before the event of 9-11. What if government computers (at C.I.A., F.B.I., etc.) had all been able to "talk" and share/ analyze/ intelligate aggretized data? What if there had been an interchangeability and exchangeability? Aren't these largely the kind of "hi-tech" public works projects we need in today's economy? (Many have warned of the negative impacts of excess efficiencies with respect to excessive automation, largely a result of internet and related technologies. But America is desperate.) Government bureaus and agencies are no different than subsidiaries of large corporate holding companies: getting systems to interact and share intelligence creates greater efficiencies. During the Bush years, a huge emphasis on guns, versus butter. A lot went into defense, but not necessarily aimed at the high-tech/DARPA/technology transfer side.

We need hi-tech projects--i.e. more government contracts--as part of the stimulus. More computer literacy and training, perhaps a coupon for a laptop for every family, bundled with varying levels of training. (Is there non-combat training the military could do more of with our young people?) We need more intra-agency network communications that are seamless. And we need policies that hire U.S. workers here in the U.S. to do this hi-tech retrofitting and implementation. We need most of the heavy lifting to come from U.S. plants. We can't borrow Chinese inflows simply to turn around and pay U.S. workers to then go to Best Buy for Chinese-made goods.

The much touted Resolution Trust (Aggregator) Bank may ultimately take all the toxic debt now on bank balance sheets and it may issue 30-50 year bonds. Similar to the Resolution Trust Corp. for the American S&L's back during the Reagan era. Or, nationalization may happen. The key is solvency, and having banks that are NOT too big to succeed. We'll see.

In light of California's deficit, Gov. Schwartzenegger has announced an initiative to consolidate redundant state agencies, in hopes of increasing efficiencies, thereby reducing costs. (At the Federal level, Obama is doing the same.)

The systemic contradiction is that greater efficiencies promote more layoffs. Our ultra-efficient tech age has translated into Chinese factories that at half-capacity can out-produce world consumption rates three-fold. One wonders: is war (or recession) the only means to diminish excess systemic capacity (and hence raise scarcities)? Fact: we have too many people...too many mouths to feed--homo sapiens has been too successful.;-) See:

The Hidden Cost of Globalism

Despite what the Cato Clowns claim, the U.S. Trade Deficit tells the real tale. Housing is a symptom. It's not just about capital inflows to an attractive, stable U.S. market. It's about real value creation, which is what design and manufacturing are all about, and which today is mostly carried out in Asia. When a $15/hr. job in the U.S. is transferred to a lower cost $3/day zone--and its product later reimported back to the higher cost zone--a net liability is incurred. (The entire supply chain is also off-shored when a job is transferred.) Consider the differential in terms of buying power distortion. Someone making the product in the $3/day zone should be buying it there. (The imbalance occurs when there's inter-zonal trading. It's not a bad thing, but it does create imbalance.) The higher cost zone is effectively borrowing, not buying, the so-called "savings," booked as profit by the private enterprise. The public sector absorbs/realizes this net liability, and accordingly profit is posted in the private entity that transferred the higher production cost to the lower cost zone. Our public liabilities show up proportionate to China's surplus (and indeed, it's more complicated because we're dealing with a global system that includes trade with other nations and includes petro dollar transfers, too). But the fact remains that--for accounting reasons--goods should remain in the zones they are produced in to avoid imbalance. Is this practically feasible? For the most part, no it is not. Hence, a global trade adjustment factor (i.e. an algorithm, deflator or multiplier) is needed to offset imbalances as they occur--at the point when trade exchange crosses zones. Not so much resembling an actual tariff, but a data adjustor in terms of global accounting metrics. Not unlike--in theory--the way a graduated lock system in say, the Panama Canal Zone, works. It's designed to prevent major flooding and offset the sea level differentials. (The increasing trend toward outsourcing cannot be blamed on unions only--it has affected all industries, even non-union service industries. Adding a surcharge to all undocumented or outsourced labor is a similar strategy...but it is basically a tax.)At the very least, outsourcing due to cheaper labor costs off shore has served to reduce real wages here at home--and I submit this is key to understanding the housing problem.

(Indeed George Soros has discussed this surcharge mechanism rather extensively, and has been talking about it for years, primarily as a trade-only currency adjustment metric. See the Balassa-Samuelson Theory, wherein purchase power parity=exchange rate.) The fact is, China's trade surplus is in large part a result of various accounting. And, our excessive trade deficit is also largely the result of accounting inaccuracies, in the way trade (and inflows, outflows, currency differentials, etc.) is measured. (Also, see the Big Mac Index for reference.)

Again, the policy key is to avoid a liquidity trap. The aim is not just to reflate, but to create knowledge worker jobs (and long-term sustainable wealth) from the bottom-up. Tax cuts are great, sufficient taxable income is first needed for folks to be paying taxes. Wiping away consumer credit card balances would only mask the underlying problem. Simply driving new consumer purchases--by rebate checks--sends dollars back over to China, and really does not promote capital formation here in the form of new investment. The big box stores are a huge contributor to our problem right now. Even large capital projects benefit primarily union trade labor, and service workers only secondarily. Wealth creation originates with innovations financed at a ground base level, often through localized incubators. Much of the "top down" financial engineering innovation from Wall Street--aimed at automation and cost reductions--didn't work, and resulted in more debt and exported jobs. We need a new approach. M&A alone does not create value. And alas...we need an entirely new mortgage paradigm...with variabilities on each side of the ratio...more shared risk and fluidity all the way around. Perhaps loan balances that float with resale prices?

According to Harvard Professor, Niall Ferguson, "The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments currently propose to do." Hence, we--the collective 'we'--shall see what is in store.

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Monday, May 18, 2009

An Ode to George Bush

A boy once lived in the land
of giant dreams and giant dreamers.
He felt very small.

Big dreams would come and go,
appear then vanish. Most dreams
had to do with becoming
'King of the Rat Race.'

The big dreams were like
huge balloons...when launched
people claimed they would
fly forever, with no end in sight.

As they climbed higher and higher
they became smaller and smaller, until...
they disappeared.

--G. Hall


Friday, May 1, 2009

Walking With Grandpa

"Walking With Grandpa" by Uncle Greg -AS FEATURED in Chicken Soup For the PreTeen Soul, October 12, 2000

When a young boy playing baseball with his friends hits a rock through a neighbor's window, he and his friends all run away. Walking home, the boy visits Grandpa and they talk. Afterwards, the boy realizes what the right thing to do is. The story, "Walking With Grandpa," uses a Socratic method of Question and Answer to reach a conclusive moral decision. The finding it suggests is that Honor is its own reward. It reaches this conclusion by suggesting that the human ability to empathize, which we all share, can guide us in gaining a sense of how others feel and are impacted by the consequences of our actions.

Uncle Greg's Commentary:

The field of ethics today is complex, in our globalizing world of comparative cultures and moral relativism. For me, ethics (despite all of the academic gymnastics) falls into two broad camps: fear-based and exchange-based. (Note: I am not referring here strictly to rules, legitimate authority, etc...but more about situation-based decision-making.)For example: a kid finds a wallet on his way home from school. He sees that no one is around and that there is money in the wallet. Does he return the wallet? If so, why? What is his motivation? He doesn't have to return it, since no punishment will follow if he doesn't. So, he won't lose anything by keeping it. (Thus, in this case, fear-based ethics do not apply.) If he returns it, he may or may not get a reward, which if he did, would likely be equal to or less than the money in the wallet. (So, the exchange-based set does not make him any better off or motivate him, assuming a right decision could be purely quantified.) Is there perhaps (conceivably) a value in returning the wallet, which cannot be quantified, according to the typical fear/exchange scenarios? The story, "Walking With Grandpa," using a different situational example, suggests that doing the right thing, for its own sake, is intrinsically priceless, in terms of the self-esteem value it yields. Motivation outside of the customary loss/gain paradigm? Living up to what we aspire to and hope for is the greatest reward of all.

G.Hall (2000)

Daddy's Bones

I am a farmer,
an Oklahoma man.
A man who has seen
the dustbowl and famine.
I held two hungry children
while their mother was sick.
I cried the tears
of a lonely man,
a broken man,
too empty to give,
too proud to take.
And I held, I held
and I prayed.
For in that dust blew my Daddy's Bones...
in my eyes and in my throat.
I held, I held
two wailin' children
so helpless and hungry.
Aye, that day I saw myself...
and Daddy's Bones blew no more.

G.Hall (1977)

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What Came First?

If, in the Present,
I attribute the cause of the Present
To an earlier Past...
Then is the Past
The result of the Present?

And if a parent is closer
To the beginning of time,
Why do we say that
The parent is older than the child?

G.Hall (2003)


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