03.27.09
Posted in Econ, Politics at 7:53 pm by Administrator
I’ve been reading blog posts by economist Uwe Reinhardt of Princeton in the NYT. He points out that lack of transparency is a big problem relative to health care providers (as we do too in white paper). Not to mention the many payers (Medicare, Medicaid, private insurers, and uninsured) with different pricing from hospitals. There are big regional disparities in health care pricing which cause a portion of the escalating costs (see blog post in Feb about HC). It is going to take an enormous amount of political will to pare down health care costs. There are many drivers that must be tackled, simultaneously or sequentially, on the supply and demand side.
This is going to take many, many years to work out. Medicare’s DRG payment system took many years to phase in. Reinhardt says Medicare’s DRG system would work well across the board to bring pricing into a more rational framework.
There’s still the cost-shifting phenomenon to deal with in Medicare. When one sector/area in health care gets squeezed, another area mushrooms, eg., after DRGs were implemented, the skilled nursing facility and home health care costs took off. I recently saw the WSJ light onto the “quicker and sicker” trend that began happening in the 80s, like it was something new. The insurance industry recognized this and LTC insurance came into being when limits on nursing home and home health care were then imposed by Medicare to control the new rising post-acute care costs. Of course, demographic factors are playing a role now. We are an aging population. We need to get wiser about health care…
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03.11.09
Posted in Econ, Uncategorized at 3:38 pm by Administrator
In an earlier post, John Taylor laid out the case for the looseness of the Federal Reserve Bank’s monetary policies of 2003-05 being part of the problem of the excess risk-taking phenomenon and housing bubble. In today’s WSJ, Greenspan disagrees.
He points to the reduction in long-term rates globally leading to the global housing bubbles which finally burst. He illustrates that China and other emerging market countries’ growth surges, beginning in the 90s, led to excess global savings, pushing long-term interest rates lower between early 2000-05. And then at the height of their euphoria, market practitioners pushed risk-management techniques and products beyond the capacity of even sophisticated market players to handle properly and prudently.
And he continues, within the context of global competition, the growth path of highly competitive markets are cyclical, and can break down on rare occasions, such a this one. So he concludes that structural changes in the global (and therefore US) economy were at play. And they were beyond the control of domestic monetary policymakers.
He proposes higher capital requirements and a wider prosecution of fraud rather than micromanagement through over-regulation of the financial system. We could setback the very dynamism of US strengths in financial markets with all types of spillover effects in business’ growth and competitiveness.
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02.26.09
Posted in Econ, Politics at 7:42 pm by Administrator
To get an idea about Medicare spending growth in your area, see the latest from the New England Journal of Medicine (Look at the interactive graphic.)
It shows what regions have higher spending growth and outlines some ways to alter the growth trajectories. Health care spending is likened to an arms race. There are no financial rewards for collaboration, coordination, or conservative practice in Medicare. The authors suggest changing the volume-based system to incorporate partial capitation, bundled payment, and/or shared savings. They point to needed reform in overuse of hospitals, and unnecessary visits, tests, and minor procedures.
From my research, tests and minor procedures were key culprits in even more increases in Medicare Part B spending (for which retirees have greater cost-sharing.) And we identify this trend in the latest white paper. The Obama administration will have a complex task ahead bringing together all the disparate groups in health care, but at least someone has posed real ideas with supporting evidence as to a solution.
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02.12.09
Posted in Econ, Politics at 8:24 pm by Administrator
Before I read John Taylor’s (famous for the respected Taylor rule of montary policy) take on how the financial crisis was created, I had come to my own macro view on the series of events that lead us to this point:
• A global savings glut was created by excess liquidity.
• Too much liquidity was chasing higher returns.
• This led to excess risk-taking.
• The truth of this was revealed, ie., over-leveraged economic growth/activity was shown to be unsustainable, thus the swelling dam burst.
• We are in a new reality with a more conservative-minded investing mentality.
• Concerns over government policy distorting economic sustainability because of fiscal stimulus are warranted. If recessions are forms of corrections and the housing market boom needed to bust, how does the market economy get distorted in the future by the intervention?
Taylor recently wrote in the Wall Street Journal, Feb 9, that government actions and interventions caused, prolonged, and worsened the crisis according to his research. Here are the points he makes:
• Monetary excesses were the main cause of the housing boom; the Fed’s target interest rate from 2003-05 was held too low based on historical standards of good policy.(the glut theory)
• The effects of the boom and bust were amplified by the excess risk-taking because of excessively low interest rates and the use of subprime mortgages and ARMs.
• Ratings agencies underestimated risks of securitized mortgages, and Fannie and Freddie were encouraged to buy these mortgage-backed securities.
• Government prolonged the crisis when they misdiagnosed the causes of the financial strains which were becoming apparent in August 2007.They believed the problem to be a liquidity problem when it was a counterparty risk problem. A counterparty risk problem required a focus on transparency and the quality of bank’s balance sheets rather than the liquidity response that occured.
• The Economic Stimulus Act of 2008 giving rebates did little to jump-start consumption.
• The subsequent interest rate cuts were sharper than Taylor’s rule (usually adhered to in policy decisions). The dollar thus depreciated sharply and a corresponding large increase in oil prices (traded in dollars) occured. High oil hit the economy hard.
• After a year of mistaken prescriptions, the crisis worsened in Sept/Oct 2008, with a credit crunch added in.
• The vague $700 billion TARP (Troubled Asset Relief Program) introduced by Treasury was considered ill-conceived, and the official story that the economy was tanking led to the panic seen over the next few weeks.
• Seamingly fear-based explanations of programs to address the crisis amplified worries along with ad hoc decisions about who would fail (Lehman) and who to bail (Bear, AIG).
His conclusion: it didn’t have to be this way. He urges sound principles of monetary policy, basing gov’t interventions on clearly stated diagnoses (something this stimulus misses a bit on) and predictable frameworks for government actions. Massive responses with little explanation make things worse (like the market reaction to Geithner’s additional financial system rescue), so the crisis has shown so far.
At least with the passage of the stimulus, this round of intervention will be done and people and business can begin to plan and adjust accordingly.
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10.29.07
Posted in Econ at 6:13 pm by Administrator
Retirement security is synonomous with risk management. In the October 20th Wall Street Journal article “SIVs Pose Risks for Money Market Funds”, another shoe dropped in the subprime mortgage/credit crunch saga. SIV securities or structured investment vehicles, which big banks were bailing out recently, were also found to be held in one of the ‘safest’ of funds–the money market fund. Not all money market funds were invested in SIVs and the amount that was held would not bust a fund. But some reduction to yield could happen with some funds. A variable annuity product by one insurer held 20% of SIV debt in one of its MMFs. Other fixed income funds by a certain fund management company posted losses from betting on mortgage-backed securities, derivatives, and other “investment exotica.”
The point is, in placing bets with the money of those seeking conservative returns, those wishing to invest conservatively and not lose principal, the financial industry gets a black eye. This is the condition of markets–risk happens. It begs the question though: who do you trust? Who or what groups are the best at risk management? Take the time to become more knowledgable, seeking out reliable, transparent financial custodians. Ask questions.
Lately, there have been more roll outs of financial products that sound annuity-like offering income stream or that try to offer some guarantees similar to fixed income annuities. The product goal is to provide income throughout retirement. Look carefully at how these products are structured and whether there are downsides to their claims, and whether that downside is an acceptable risk. So, the principle would be: how do these products work, what are their investment components, and what is their downside?
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09.18.07
Posted in Econ, Politics at 5:15 pm by Administrator
Greenspan makes the circuit, being interviewed by all the top news outlets and venues. Today I listened to him speak about his book of memoirs on KERA 90.1 FM. He reiterated that Medicare is really one of the biggest problems we have in terms of public policy. His view is that more well-off beneficiaries will be paying more in the future. (He was asked what policy he would prescribe.)
The white paper has a few choice Greenspan quotes which relate to his ideas; my policy prescriptions mirror his. The program should be there for those who need it–those of middle income to lower income. Also he says the government needs to communicate its direction so that those who need to plan, may do so. So far, I’ve seen no presidential candidate make any health care proposal that includes the reality of Medicare’s prospects. Hillary goes universal again, but with a private sector twist. None of them want to tackle the Medicare problem before being elected, my guess.
As we’ve seen the forces of globalization (excess liquidity) create housing bubbles which later popped world-wide, so too less demand by foreign investors in holding Treasuries may force the hands of politicians to deal with reality (see white paper). Last week, Bernanke indicated that the current account deficit was not sustainable over the long term. I hope our goverment makes smarter moves for the whole population before events force our hands, giving more pain economy-wide than some smaller adjustments.
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