It May be DeJa Vu All Over Again

February 11, 2010: Elizabeth Warren (1), the Chairwoman appointed by Harry Reid in the fall of 2008 to lead the Congressional Oversight Panel formed to oversee the Seven Hundred Billion Dollar ($700,000,000,000) Toxic Asset Relief Program (TARP), has been an advocate and champion for the “middle class working family” for the past ten years or so. Early this decade, she completed a study of how a family composed of a married couple and two children have actually become poorer during the period from 1970 to 2003. She has predicted the bankruptcy of the Middle Class family unless the problem of the “rich getting richer” and the middle and underclass becoming poorer is solved. This is called “redistribution of wealth” folks.

Looking strictly at the data she offers and the absolute changes therein, adjusted for inflation, it is difficult to dispute her conclusion. But, when you look at the real value of the progression of this so called middle class family’s struggle during this same period, there has been a ratcheting up of the quality of life. They enjoy the availability of everyday higher and higher advancements in technology that has given them automobiles and unparalled efficiencies in transportation, advances in media-entertainment communication, medical and pharmaceutical discoveries, better trained providers of health care services, improved opportunities for education, and of course the ability to see the whole world at your desktop computer through the Internet, etc., I believe her conclusion may be flawed. Nevertheless, I think we will be hearing a lot from Ms. Warren about how financial institutions requested by the consumer to fund these goodies are exploiting the middle class, notwithstanding their voluntary leveraging into more expensive housing. transportation and the questionable pursuit of life styles of the rich and famous.

In her new role as Chairman of the COP Committee, she is holding monthly hearings on the results of TARP and has begun to focus on the condition of the Commercial Real Estate Market and the potential threat that a new wave of foreclosures may be upon us beginning later this year unless someone (the Government) does something about it. This is almost certainly going to be the recommendation of her committee.

Here are some of the facts: According to Jon Greenlee, Associate Director of the Division of Bank Supervision and Regulation of the Board of Governors of the Federal Reserve System, Federal Reserve examiners are reporting sharp deterioration in the credit performance of loans in bank portfolios and loans in Commercial Mortgage Backed Securities (CMBS). Of the approximately $3.5 trillion of outstanding debt associated with Commercial Real Estate, including loans for multifamily housing developments, about $1.7 trillion was held on the books of banks and thrifts and an additional $900 billion represented collateral for commercial mortgage-backed securities, with other investors holding the remaining balance of $900 billion. More than $500 billion will mature each year over the next few years. In addition to losses caused by declining property cash flows (rents and lease income, etc.) and deteriorating condition for construction loans, losses will also be boosted by the depreciating collateral value underlying those maturing loans. These losses will continue to put pressure on bank’s earnings especially those of smaller regional and community banks that have a high concentration of them.

Before the 2007-2009 financial industry meltdown, securitization markets were an important conduit of credit to the household and business sectors. This market essentially shut down in mid 2008 causing the Treasury and Federal Reserve to create a program called “Term Asset-Backed Securities Loan Facility” (TALF). Entities in the financial industy were having to mark their assets to market under financial company operating regulations. Whether the loan was current or not the high leverage common in financial companies was causing capital to shrink if not disappear even among what were considered the more stable and successful banks or other financial institutions. TALF was an idea that if you could shift the so called “toxic ” assets requiring Mark to Market from the regulated financial institution to the portfolio holdings of large institutional or individual investors willing to take the risk inherent in the loans, this would go a long way toward stopping the technical implosion of the financial and banking system. The Treasury saw this as a plan by which they could guarantee or indemnify the TALF eligible investors from major loss by providing the financing for the purchase along with certain buy back guarantees for a percentage of the face value of the loan and the banks woul then be able to fund new auto loans, student loans, credit card borrowing, small business loans and even loans to larger businesses thus stimulate economic activity. If a loan purchased by the investor was not paid off or was sold below a certan minimum percent discount of face value thereafter, the investor would receive a high percentage of their loss paid to them by the Treasury. If the loan was paid, their wold enjoy a very high return. While the government guarantees in the TALF program did stimulate buying in TALF eligible securities holding these CMBS, the banks have been reluctant to loan the monies they received until they have a better understanding of what future risks are going to be. Now, market participants anticipate that CMBS delinquency rates will climb higher in the near term, driven not only by negative fundamentals, but by borrowers’ having difficulty rolling over those loans that are maturing.

What does all this mean? If we can believe Ms. Warren, the pending rising defaults in commercial real estate loans are going to cause another earthquake in the financial markets. The question then becomes, “will the Federal government step in with new guarantees or the funding of massive new programs designed to provide liquidity or simply will they fund a bailout of the 3000 plus small banks and the TALF investors that are holding these securities on their balance sheets”. Will the “too big to fail” concept be extended to the small and community bank? If it’s true that over 50% of the Commercial Real Estate loans are under water, I suspect that we will soon begin to hear about a new trillion dollar program that must be instigated before the November elections to save the financial system again. Perhaps it will even be a recommendation by Ms Warren who seems to have little confidence in capital market economics or just believes they are too punitive to those who are willing to take risks if they make a profit but cry for help when they fail.

Here is my take. If the Government thinks it is manageable to create another Trillion or so of Treasury debt to keep the small and midsized banks from failure and make good on their guarantees caused by the continued necessity to mark to market their assets to levels that cause their equity capital to fall below that required to be sustained by regulations, why wouldn’t it be in the American taxpayer’s best interest to just have the bank regulators go ahead and let the banks fail, go through bankruptcy, sell their remaining assets to new investors and reorganize with capital loans totally or partially guaranteed by the same partnership (Federal Reserve Bank and U.S. Treasury)? Given that these banks are going to fail because of poor due diligence and poor risk management, why should we be concerned that their current shareholders or owners have to suffer the consequences caused by their misjudgments?

One Man’s Opinion—Bud Brewer

(1) Elizabeth Warren (born 1949) is an American attorney and law professor. She is the Leo Gottlieb Professor of Law at Harvard Law School — where she teaches contract law, bankruptcy, and commercial law — and has devoted much of the past three decades to studying the economics of middle class families. In the wake of the 2008-9 financial crisis, she became the chair of the Congressional Oversight Panel created to investigate the U.S. banking bailout (formally known as the Troubled Assets Relief Program). In that role, she has provided a critical check on the U.S. Department of the Treasury and has been a leading advocate for accountability and transparency. In 2007, she also first developed the idea to create a new Consumer Financial Protection Agency, which President Barack Obama has advocated and Congress is now considering.[

Obama: “You Mean there’s No such Thing as a Free Lunch?”

Brad Schiller is an effective professor of economics at the University of Reno, Nevada’s College of Business. I say this because like most people, during my 50 years in the financial services business world, I have lost much respect for many teachers in our Universities twisting the minds of students about how the world really works. But Brad Schiller is an exception to that belief and in a column, written in of all places, the Reno Gazette Journal, Reno’s daily voice from the left. Professor Schiller hit the legendary nail on the head with his explanation of why Mr. Obama’s claim that his Bill to provide National Healthcare for everyone at zero increase in cost is and always was flawed. Take a moment to paste this to your URL line in your Browser and read it. http://www.rgj.com/apps/pbcs.dll/article?AID=20102030407

It seems clear to me that the rising disappointment in President Obama’s leadership is being caused in large part by the slow but steady realization by his most ardent supporters that this brilliant orator has little understanding of how a free market capitalistic based economy operates, let alone what the Government’s role should be relative to the nurturing of its growth. Let’s take his latest comments that he is going to increase employment by giving a $5000 tax credit to small businesses that hire another employee. Incentives are an important ingredient in the decision making process exercised by a business manager. But a one shot credit or even a one shot cash payment mean little to whether or not the hiring of that person will add to the success of that small business. The factors considered by managers to determine if hiring another salesperson, receptionist, service agent or where house employee, etc., are more likely to be based on whether or not his hiring will add value to the firm’s ability to increase revenues and improve profits. On the other hand, if the local or Federal Governments decide to eliminate a restrictive and costly regulation affecting his business or to reduce or eliminate annual fees or taxes on the business revenue, the manager may decide to invest the increase in resulting profit margin (cash flow) by adding personnel to open a new branch, or add new products or services for which there is a growing market. But a one shot tax credit of $5000 to employ one of the unemployed is not a real job creator.

If President Obama thinks his plans for increasing taxes on small businesses earning over $250,000 per annum (a figure that includes individuals organized as an S corporation, LLC, etc., the profits of which are taxable to the shareholder as ordinary income) will result in rising employment and economic growth, he needs a refresher course at the Harvard Business School (or maybe it should be somewhere else). President Bush’s “Tax Reduction for the Rich” legislation of 2002 did much to get the business community, big and small companies, to commit capital to exploit opportunities perceived to be available. The fact that both he and the Republican Congress from 2002 to 2006, urged on by the Democrat minority did little to reduce discretionary and entitlement spending in order to pay for the war in Iraq and neither the Federal Reserve, Security Exchange Commission, members of Congress nor the large underwriters on Wall Street recognized the risks developing in the Sub Prime Mortgage disaster, is not a basis for concluding that the 2002 “Tax Act” in and of itself was unfair or prevented the funding of in place entitlements for the poor and disadvantaged. In fact the Federal Personal Income Tax revenues increased from $1.8 Trillion to $2.25 Trillion, an increase of $400 Billion in the first two years following the across the board tax rate reduction and continued to increase at that rate until 2007.

Today’s economy, having been buffeted by the near financial meltdown and the Government’s action to keep large (Too Big to Fail) banks afloat with almost $800 Billion dollars to shore up their balance sheets, is suffering from a “deer in the headlight syndrome” of its small business sector. Big companies are generating cash by reducing inventory and aggressive cost cutting but the engine of the U.S. economy is the small, creative and dynamic businesses where the large majority of new jobs are created. Those managers that I speak with are reluctant to employ their remaining capital and their business plans project questionable profit potential given the uncertainty of Federal and local tax policy changes being considered.

In order for this economy and its interrelated parts of the global market to get back on tract, President Obama and the Democrats are going to have to give up on their plans to enact legislation designed to redistribute the wealth of this country’s most successful investors, entrepreneurs and businessmen. Fair taxation, yes but redistribution, no. He must give reasons for the consumer to once again develop a sense that the strength of our business community and a new found fiscal wisdom by our government will enable them to regain enough confidence in that government to begin investing again.

One Man’s Opinion – Bud Brewer

I Guess I am a Racist

There are some people whom I admire a lot. Upon reflection as to why I feel this way, I find that they all seem to have some characteristics in common. Raised in Christian family bludgeoned daily about doing the right thing according to standards that make more sense to me today perhaps than they did when I was a kid, I find camaraderie with people who have the same values. If someone says that they believe that each individual has certain rights and those rights are in line with my beliefs, I tend to feel good about them and want to help them in almost any endeavor they try. When an individual expresses opinions and views that I agree with when speaking to local, national or international controversy, I feel good about them and want to help them in any way they are in want. When a group of people or an organization of any kind appears to represent my beliefs and expresses them in words that I tend to use to express my own feelings, I feel comfortable becoming a participant in and supporter of their mission. I don’t question their ethnicity, religion, schooling, number of marriages they have, or where they came from. I tend to just feel comfortable with what they say or do.

Now when I examine some of my feelings about those with whom I have differences I find myself concluding that the problem is that they have a different, at least in my opinion, perhaps less ethical standard by which they are living. When I examine who is embracing those different standards, principals or ethics, I must admit I see religious or racial groups not individuals. As a result I can be having a conversation with a black person whom I admire and find myself making derogatory or generalistic remarks about black people. I do believe that a very large majority of black people just think and behave differently than I do or those with whom I organize do. I am guilty of group discrimination if the majority of the members of that group have different values than I do.  Therefore when I hear the words Black Caucus or African American or National Association for the Advancement of Colored People, I generate an attitude that is far different than when I have lunch with a friend who is black or when I sit in admiration of the work ethics and success of a Tiger Woods.    I cringe when a low rider car passes on the road with speakers blasting rap music, yet have a lifetime love of some of the songs sung by Nat King Cole or Sammy Davis Junior, Ella Fitgerald and their likes.

No matter what a Society mandates for its people, there are bound to be individual differences among  its members.  Some of those differences are repugnant to me.  Others are almost invisibly pleasant.  But when people are judged intolerant because of their reaction to behavior that is inconsistent with the standards embraced by the whole, they are often thought to be racists.  This is as if experiencing a feeling or displeasure with an act or trait of another is something unnatural.

If I voice objection to the political philosophy of Barack Obama or the illiterate rantings of a Maxine Waters, I am called a racist.  If I comment on the way Jesse Jackson or Al Sharpton exploit their religion based tax exempt schemes to control black constituencies, I am called a racist.  If I am offended by the way black musicians use vulgar words in their performances and can’t seem to be able to speak a complete sentence without including ten superfluous words such as “like’, “you know”, etc. , I am called a racist.

Well folks, if having individual or distinctive views or reactions to that which is occurring around us or promulgated by an ethnic group is racism, then……….

One Man’s Opinion – Bud Brewer

Understanding The Transfer of Risks

November 7, 2009: In order to protect themselves from catastophic loss of net worth in the event of an extraordinary event such as an automobile accident, a residential fire, violent storm, or damage to or theft of a valuable asset, the consumer today has the opportunity to join pools made up of other people all of whom have a common desire to protect themeselves from such a loss.

These pools are called insurance or indemnity companies and operate on the basis of determining each party’s cost (policy premium)to be part of the pool  using historical experience along with a calculation of probability for the number and frequency of occurances expected in the future.

In order to assure that benefits may be paid on any legitimate claim submitted by a policy holder, the owners of the insurance company must commit a certain amount of capital to the reserves for anticipated losses over and above the amount of premiums collected from the policyholders.  As the dollar value of claims or  loss rise or fall, the company accounts for these amounts as an underwriting profit or underwriting loss and this amount will be credited or charged to taxable earnings of the pool. In addition to these gains or losses, and as the primary source of the insurance company’s earnings, the entity receives income from the investment of their member’s pre-paid policy premiums and this also is credited to the income of the company. Careful risk management will enable the company to reduce underwriting losses and in some cases even show an underwriting  profit, however, underwriting profits usually will reflect a probability that the premiums are excessive and this fact will soon subject the company to competition from other pools with lower premium rates.

This works well for property such as that listed above but it hasn’t worked well for healthcare insurance. Why is that? One reason is that risk management is based on the ability to forcast or estimate the probability of an insured event taking place and being able to quantify the probable loss. In healthcare,  the probable loss is potentialy unlimited. So the premium cost for healthcare insurance is based more on recovery of  losses than the probability of an event. In order to provide some constructive influence over the amount of monies the pool has to pay out from premiums collected, the risk manager may deny coverage for pre-existing conditions. In these cases if a member of the pool has experienced a serious malady or desease before joining the pool, the premium charged that individual for his or her share of the general coverage risk transfer could be exceptionally high or even denied coverage at all.

It is this procedure that has so many individuals upset about the cost of their health insurance and the belief that having the government take over the pool is going to solve their problem.  It will do so only temporarily and then at the expense of the population as a whole by way of increased tax rates.   Furthermore in providing healthcare services, the medical profession’s charge is an open ended mandate that says “make me well no matter what the cost”.  Being sensitive to the needs of suffering people, the medical profession spares no expense in pursuing the cause of and needs for the individual to be cured and then expects to recover the major portion of those costs from the insurance company or in the proposed case, the U.S. Treasury .

This fact makes the element of probability in determining the cost of premiums to be moot.  It becomes more a process of reimbursement and there is little or no guidanc for limiting the potential cost of the cure.  What a dilema.  Unless the individual consumer becomes willing to settle for a restricted degree of health services, their cost of sharing the risk via ever increasing expenses billed to pools will rise in parabolic form.  Our political friends in Congress and the Administration are prepared to provide these medical services no matter what the cost as long as their constituents indicate to them that they expect to receive the benefits of unlimited health care.  Their solution, i.e., increase tax rates and take control of the administration and distribution of medical services, will eventually overwhelm the ability to pay from the country’s tax base.  Countries that now have a Universal Health care single payer system have had to solve this problem by reducing the quantity and quality of the services they provide their citizens.  And even then, the demands upon their tax base is ever growing.

We will no doubt soon begin our journey down this long road to mediocrity unless a growing number of citizens begin to understand where this road leads and insist that the healthcare legislation be scrapped in its current form.  In place thereof, perhaps a system where the patient is required to have both input (approval) regarding which services they are going to have performed and financial responsibility (so called “skin in the game”) to pay a  rising variable percentage portion of the cost of any proposed medical expenses to be incurred in that year that are above a given standard.  Any allowable or standard amount of coverage provided under the basic insurance policy may be increased voluntarily by paying an increase in the normal premium.  In this way, everyone has a basic amount of health care provided for a basic premium, but when proposed services rise above that minimum, they have the discretion to accept the proposed services but must either pay for a rising portion of that increment or defer receiving some or all of them or consider less expensive alternatives.

One Man’s Opinion– Bud Brewer

LIGISLATING HEALTHCARE

November 6,2009: I have been listening to the politicians, media pundits and many individuals talk about healthcare and the notion that everyone has a right to receive medical care for any illness or other adverse physical condition that they suffer from. For decades, a number of Congressmen, Senators and even Presidents have argued that one of, if not the most important, planks in their campaign platform is to create legislation that guarantees healthcare to every citizen in this country. It’s a persuasive argument. No one I know would want to purposely withhold some readily available form of treatment for a fellow citizen to aleve if not cure a malady they suffer.  I know the reader has seen the hundreds and thousands of pictures submitted by one or more charitable organizations attempting to assist children and adults in some part of this country who are afflicted with a serious disease or that live in an area where there are few or limited affordable medical services available. It tugs at your heart to look at these children, some living in squalor and apparently suffering from some disease in addition to partial starvation. Who wouldn’t want to reach out and lend them a helping hand?

In Congress today our Representatives and Senators are about to vote on legislation that is intended to take that right away or at least generalize it so that we as individuals will no longer have the right (option) to make the decision to reach in our pocket and share some of our savings with those that are in need. When this legislation is in place, the Federal Government will decide when, where and how much of our personal earnings are to be spent for the wellbeing of our fellow human beings who are perceived by a government bureaucracy to be in need of medical care. Perhaps it will raise the level of medical services available to the 40 million or so men, women and children who are not able to afford it, have been turned down for it, or who just don’t want to purchase health insurance today. But will this perceived approach generate a continued high quality of medical services or will it merely make a lesser but general volume of lower quality care available to everyone?

In thinking about this, it occurred to me that healthcare is one of, if not the only, service that can not be allocated by market forces without having disproportionate results relative to treatment or services made available to all individuals. I can’t think of any other want or perceived need that has this or a similar kind of clearing process. When we get a disease, we don’t ask the price for a procedure to cure it. We expect to have every available medicine or treatment used to make us well again. If we need to have treatments that could cost hundreds or thousand of dollars to provide, so be it!  We need it and we should receive it. We have solved this dilemma by forming organizations that allow us to transfer some of the expense risks to others in the same group.  We call that an insurance company. This system has worked reasonably well as long as the cost of providing those medical services is low relative to the number of medical incidents and the financial ability of the participants in the organization as a whole to fund or pay for the aggregate cost thereof. With the creation of these third parties to the transactions between individual patients and their healthcare provider, the individual or health beneficiary is disconnected from making a valuation of service versus price. This is the same process as if a dozen people go to dinner and decide to split the bill equally among them. One individual may not feel too hungry and want just a salad or so while another with a greater appetite feels like ordering lobster tail and a bottle of wine. As you can figure out, the individual with light appetite isn’t going to want to pay his share for such excess by one of the group so he will order the Lobster also just so he doesn’t experience a disproportionate cost for his salad as he subsidizes his friend’s desire to order the most expensive item on the menu. Because everyone thinks the same way, the bill for the group therefore increases to the highest aggregate amount.

This is what is wrong with the insurance based healthcare system today. Everyone wants “Lobster tail” health care to be available even during times when their appetite is modest or they may not even be hungry at all. Every individual needs to be a party to the pricing structure for healthcare services they believe they need. They should have options available that relate to their ability to pay or their perception of the benefits to be realized from one type of care versus another more or less elaborate type of care. But they should have a responsibility to pay some relative part of the cost of the services they select. This should not be a fixed percentage but an incremental portion of the cost.  The medical services profession would become more competitive and work toward improving the price/effectiveness relationship rather than just work on developing effectiveness as they are motivated to do today.  They should be challanged to deliver the highest form of care for the patient’s ability or willingness to pay.

The Democrat’s healthcare legislation is geared to trying to mandate that doctors provide appropriate medical services based on standards set by a government bureaucracy, shift the costs of general services for all user patients, regardless of their financial resources, to those taxpayers earning higher incomes, and charge employers a minimum of 8% of payroll to help pay for the government run plan. There will be no constraint upon, nor competitive price/effectiveness relationships for medical equipment, medical services or hospitalization. Suppliers of these services or products will only have to demonstrate effectiveness to be included in standards of performance required to earn compensation.

While the legislation is still pending, the opponents to this government controlled insurance-healthcare service program will need to make their voices known for any hope to prevent this major shift in responsibility for, the future availability, and quality of our nation’s healthcare services.  We need to step back and redefine the issues and the potential solutions for this nation’s healthcare delivery system.

On Man’s Opinion –Bud Brewer

TRANSITION OF THE WORLD’S MAJOR POWER

October 8, 2009: It happens from time to time and usually in very subtle ways. A country rises to the pinnacle of world prestige and power and then slowly inexorably, sometimes drastically, it faces its demise. Before the Nuclear age began, wars were the major cause of a country’s decline in power and influence. Since that time, it has been more or less in accord with economic and financial development. I am struck by the vacuum in most people’s understanding here in America of what is happening on the mainland of Asia, South America and parts of Eastern Europe. China’s leader Deng Xiaoping (done shopping) instigated a policy back in 1978 that acted as a springboard for moving One Billion plus people toward a better life. While denying it reflected his disbelief in the command style economy of Communism, it opened the doors to the acceleration of progress toward a better life for more and more Chinese citizens. What was thought to be an almost benign adjustment in the command and egalitarian style economy that Mao Tse Tung enforced upon the Chinese people after defeating Chiang Kai-Shek’s American supported Nationalist’s government in a civil war, has become an economic rocket engine propelling that country into the position where it will soon become the World’s leading economic as well as political power.  The adjustment? Well it was a simple change in how the fruits of labor by the Chinese people were divided.  Instead of toiling for their fellow man by turning all their production over to district leaders and government agencies for government processing and redistribution, Deng changed this process.  He had observed how much more productive one district was in its agricultural output than their neighbors and learning that the District leader had put in effect a policy allowing each district farmer to keep for personal benefit and trading a small fraction of their output, Deng decided to make this a national policy and the seeds of capitalism were born.

Today, perhaps as many as one third of China’s population (450 million people) has been drawn out of abject poverty and is beginning to enjoy at least some small portion of the fruits from their personal labor or production.  They have become better educated, live in modest but better housing, own I phones, cell phones and some number of automobiles.  They wear western clothes, are computer literate, travel to other countries, and are accumulating savings at an extraordinary rate of 30% or more of incomes.  In response to these changes in life style, the economy has been experiencing extraordinary economic growth.  While still a major exporter, the country is producing more and more of what they need rather than having to depend on others to supply it.  They still depend on imports for many of their critical needs, but slowly and surely they are beginning to become a consumer driven self dependent nation with more and more of their needs produced domestically. They are a very frugal nation with the highest savings rate in the world. In the meantime the USA is steadily moving toward becoming less influential in the World, politically, economically and socially.  Our culture is becoming more and more dominated by people who have not come to America to take advantage of the opportunities freedom gives the individual to achieve greatness but more to exploit the generosity of a nation sensitive to those normally few members unable to take care of themselves.  Our political leaders today are embracing policies of wealth redistribution because the recipients of such transfers are increasingly becoming important part of growing constituencies and we all know that getting re-elected is far more important than embracing the principles of free enterprise, individual rights, less government and moderate taxation.  Our currency is becoming soft as this and previous Administrations have introduced larger and larger unfunded spending programs for dubious purposes.  When we are forced to engage in military action to supposedly protect the security of our people or our allies, the all volunteer military is expected to bear the entire burden of sacrifice while those civilians not engaged do little in support but actively voice their objections to the discomfort the conflict has or is causing. As a result we have truly become the “Paper Tiger” of the world.

I don’t know how long it will be but I am certain that in the next one or two generations, America, the largest economy in the world today, the country seen as a model of freedom and liberty will have a major “800 pound Gorilla” in the room dictating the terms for how global political, financial, monetary and economic policies will function.

It will require careful consideration for investors who want to anticipate and plan for the major changes in the future relative power and economic strength of America. We need to figure out what to do with our accumulated wealth, our retirement accounts and our personal and real property.  Will it be possible to preserve wealth by investing in fixed dollar securities?  Probably not unless the interest earned thereon is equivalent or greater than the devaluation of the Dollar. Would it be better to invest in other securities denominated in a foreign currency?  Will China’s huge investment in U.S. Dollar securities cause them to begin exchanging them for securities denominated in a harder currency?  What is all this talk about making a basket of currencies the basis for pricing oil or other globally traded commodities?  What about Gold?  Is the ownership of this metal a real hedge against inflation or dollar devaluation?  As my Friend William H. Hurt of Capital Group said. “Here lies the peril for all of us as we try to maneuver through the next years of diminished relative significance of the United States of America, not absolute, surely, but certainly significant.  While that process still has a long way to go we have to avoid simply voicing condescension when addressing the problem”.

One Man’s Opinion- Bud Brewer

HEALTHCARE, WHAT’S THE PROBLEM?

October 2,2009: To universalize or not to universalize health care, that is the question Congress is trying to solve. But the main problem with health care as we practice it here in the USA is not whether it is privately insured by independent companies or by a department of the U.S. Government, it is that there is a disconnect between the consumer of health care services and the provider of such services. In few if any market driven businesses is the buyer and provider of a product or services disconnected like they are in health care. When you go into a retail outlet and look at the various items of merchandise they offer, you make judgments whether to spend $10, $50, or $100 on a product by what value you place on possessing it or using it for yourself or family. When you enter a contract with a painter, carpenter or engineer for services to an asset you have, you make that same judgment as to the value you believe is offered based on a variety of alternatives and considerations that are personal. By this process the prices for goods and services we deal in are set by agreement between the buyer and seller, or as we refer to it, a free market transaction. The problem with health care is that the provider and the consumer have become disconnected with regard to the price/value considerations relative to the transaction. Living with medical solutions to all problems is not necessary but it is a mighty nice convenience. Medical researchers make decisions whether or not to progress toward modifying, improving or changing a solution or medical process, not with the guideline as to whether or not enough consumers, such as you and I, will part with some of our wealth or future income to make the development economic but only whether or not it works. This has come about by the ingenuity of the “find a need and fill it” crowd who, years ago, developed the business of laying off, sharing or transferring the risk or cost of our need to purchase what ever it takes to solve a problem. We call these entities insurance companies and in exchange for paying them a relatively token amount of a potential large dollar risk (something we call a premium), they make our lives less hazardous, and they save us from having to build up enormous personal emergency reserves to assure that we won’t suffer extraordinary loss of wealth or health as a result of not being able to correct a problem. As beneficial a service as this seems to be on its face, many people believe that the companies engaged in insuring us against such risk are exploitive of their consumer policy holders and the providers of health services in general. Few people know insurance companies operate on the basis of probabilities or long term expectations and set prices for coverage that takes into account potential rates of loss for the universe that they are covering. Many critics of the profitability experienced by insurance companies are probably unaware that their underwriting of risks typically generates a loss. That is they lose more money paying claims than they collect in premiums. So how do they make money? They collect cash from premiums paid by the insured for future potential losses or future health care expenses and invest in interest bearing securities, usually in dollar safe or thought to be safe fixed income bonds, commercial paper, mortgages, or any other income producing obligation. The risk they assume notwithstanding, is that of assuring the payment of claims and they get very nervous when a major disaster like hurricanes, fires, health pandemics, etc., threatens their net cash flows and may require a potential draw against their capital base.

A majority of the public believes that since we pay for protection against the risk of ill health in general through insurance, we can have whatever medical treatment or service that is available in spite of the cost. The uninsured, whether by choice or force, still believe that they should have access to whatever health care or medical procedure is available regardless of its cost. In other words, health services are a right not a commodity. The Obama solution is to embrace this concept but to do so we will have to transfer the risk of the expense therefore to the population as a whole. Since this will not correct the worthiness of a medical service, treatment or application we would otherwise have if we had to make judgments about the value of such services because we had to pay for it ourselves, then we need to be prepared for unbridled costs, fees and limited availability of health services in general. Furthermore we will need to meet the cost of professional health services by the transfer of whatever wealth is necessary to compensate them. Of course if we, as individuals, would have to bear the financial burden of some larger part of the unlimited health services available, the general demand for those particular health services that are marginal would go away. But this is not the case now and not likely to happen. National Health Care requires the moral acceptance in principal that all citizens have a right to unlimited healthcare services in equal quantities. This is where we are likely to be after Obama care is legislated. The Obama Administration and many citizens believe that there should be equal rights to health care and their plan is to create the structure to provide it by increasing availability to the underclass and reducing or rationing its availability to the population in general. Citizens will continue to fund it in amounts relative to their taxable income levels but the health care professionals will function more and more as service providers to the new government department (beaurcratic agency ) generated by the current or substitute legislation.

Unless the voting constituencies decide that they want to keep the present risk transfer system in place and absorb the steady rise in unabated cost of health services generated by an industry that operates outside the free market system of controlling prices, we most certainly will be living under a government operated allocation system that will level the playing field but will bring average quality of health care down for most of us.

One Man’s Opinion- Bud Brewer

IS IT JUST ME OR ARE THESE GUYS SCARY?

Exercising the Brain

I read with great interest a study recently done by a friend of mine, William G. Callahan PHD, Emeritus Professor, Department of Special Education and Communication disorders, U. of Nebraska, Omaha.  The subject was Nuerogenisis, the process by which our body creates new nerve cells.  An introductory quotation by Antiago Ramon Cajal (1852-1934), “Every man can, if he so desires become the sculptor of his own brain” is challenging.  Some recent claims that “Brain Games” will prevent Alzheimer’s disease may not be precisely true, but Robert Butler, President and CEO of the International Longevity Center does say that “a healthy brain is essential for longevity.”  In Dr. Callahan’s study he says “While common belief may have been that nuerogenesis is a rather inactive process in most areas of the brain, recent research has demonstrated that nuerogenesis does continue into and throughout adult life in both vertebrate and invertebrate organisms.”   So what actions are conducive to promoting the building or creating of a healthy brain.  Certainly proper nutrition is essential.  But I am convinced that there is truth in the proposal that exercising the brain will build brain “muscle” so to speak.  How do we do this?  Now you will discover where I am going with this proposition.

While there is more than one way to exercise the brain, such as reading, playing video games, chess etc., I believe the very best vehicle for working the brain is the game of Contract Bridge.  It has everything necessary or desirable to build values as they relate to brain exercise.  The game requires the learning of certain skills that together function in a way to maximize the process of brain exercise while enabling the participant to have fun and satisfaction (at least most of the time).  Bridge requires communication skills, problem solving skills, reasoning, deducing, deception, planning, and of course with so many variables, a little luck.  One skill not taught or perhaps not teachable is the process of inferential analysis, the ability to conclude a probability gained from what others do or don’t do and take advantage of it.

Getting back to the brain, it is an enormously complex structure with over 100 billion nerve cells.  Each cell is connected to 10,000 others so the total number of connections is over 1000 Trillion or about the same size as the U.S. National Debt appears to becoming under the Obama Presidency (thought I wasn’t going to talk politics, right).

The problem with the game of bridge today is that the numbers who play it has diminished to probably less than 1 million people and most of those are seniors. In its heyday during the 1920s and 1930s when Ely Culbertson single handily generated extraordinary interest in the game with his challenges, with his wife as partner, to play anyone, anywhere for a sizable purse to the winner, the popularity of the game has been shoved aside by video mania where mind numbing games requiring digital dexterity have taken over the attention of the young.   College used to be a breeder for bridge players but today the dorms and fraternity or sorority houses are filled with students who are much more serious about their studies or those who are spending spare time glued to the boob tube watching some athletic event.   It was said that over 30 Million people played bridge at some level of skill in the 1930s.

But all is not lost.  The American Contract Bridge League, the governing body of tournament bridge here in the Western Hemisphere, has established an educational foundation that will fund the teaching of bridge by supplying bridge text books, lesson plan manuals and playing cards to schools that form a bridge club and the students receive 16 hours of instruction.  This program gained a boost in its operation when the results of a research study; “Scientifically Speaking” by Dr. Christopher Shaw of Carlinville, Illinois was recently published.  Shaw enlisted a group of 100 students with similar academic ability and randomly picked 15 of them to learn and play bridge.  Over the three study period, all the students were given the Iowa Test of Basic Skills each year for three years.  What Shaw discovered, however, was that the students who learned to play bridge had a greater average increase in their ITSB scores than their non-playing classmates.  In some cases this advantage was much as forty percent.

Learning of this study, a group from the Reno Unit of the ACBL decided to form a non profit company, Reno Youth Bridge Inc., to organize and administer the teaching of bridge to students in the Reno school system.  This program is entering its second year this fall with what appears to be as many as 12 schools participating.  The amazing thing is the number of volunteers from the Reno bridge world who have stepped up to serve as teachers or assistant teachers for this program.  The members of each school’s bridge team will compete in at least one year end championship duplicate tournament.  But it is hoped that the National American Bridge Championships scheduled for play here in Reno next March 2010 will offer our Reno Students a tournament participation in that Venue.  Over ten Thousand bridge players will be coming to Reno and it would be an exciting opportunity for our youth bridge teams to be able to compete right along side the World’s best. It will be sort of like all our high school golf players being able to play at the Masters in a foursome with Tiger Woods.  Now wouldn’t that be fun?

One Man’s Opinion–Bud Brewer

Reno Youth Bridge is a tax exempt organization operating under the provision of the 501(c)(3) section of the U. S. Tax Code.

The Canonization of a Senator

Mary Jo Kopechne, 29 years of age, was an enthusiastic campaign worker and one of 6 political female members of a group campaigning for Bobby Kennedy. They were called “The Boiler Room Girls”. “On July 18, 1969 she and her cohorts attended a party on Chappaquiddick Island off the coast of Martha’s Vineyard, Massachusetts in their honor. It was the fourth such reunion of the Robert Kennedy campaign workers.

Kopechne reportedly left the party at 11:15 p.m. with Robert’s brother Ted Kennedy, after he — according to his own account — offered to drive her to catch the last ferry back to Edgartown, where she was staying. She did not tell her close friends at the party that she was leaving and she left her purse and keys behind.

Kennedy stated he made a wrong turn on the way and came upon a narrow, unlit bridge without guardrails. Kennedy drove the 1967 Oldsmobile Delmont 88 off the bridge and it overturned in the water. Kennedy extricated himself from the submerged car but left Kopechne to die, after what Kennedy said were several diving attempts to free her.
Kennedy contacted several aides that night, but failed to report the incident to the authorities until the car and Kopechne’s body were discovered the next morning. Kopechne’s parents said that they learned of their daughter’s death from Ted Kennedy himself, before he reported his involvement to the authorities, but that they learned Kennedy had been the driver only from wire press releases some time later.

A week after the incident, Kennedy pleaded guilty to leaving the scene of an accident after causing injury. He received a two month suspended sentence. On a national television broadcast that night, Kennedy later said he was not driving under the influence of alcohol nor had he engaged in any immoral conduct with Kopechne.

Questions remained about Kennedy’s timeline of events that night, about his actions after the accident, and the quality of the investigation and whether official deference was given to a powerful politician and family. The events surrounding Kopechne’s death damaged Kennedy’s reputation and are regarded as a major reason that he was never able to mount a successful campaign for President.”

Today the Nation’s Political elite participated in a media driven and intensely covered funeral Mass for Senator Ted Kennedy at the Basilica of Our Lady of Perpetual Help in Boston, Massachusetts. The presence and words by Cardinal Sean P O’Malley of Boston and the principal Celebrant, Rev. John J. Monan, a Jesuit Priest, suggest the possibility that Senator Ted will indeed be canonized as a Saint by the Catholic Church. While this gathering of all those important people who run our government and serve our faith was presented as a tribute to the Senator’s service to mankind, I believe that it in fact was more likely an act of forgiveness for his cowardly behavior involving the death of Miss Kopechne. In addition, however, it was recognition that neither his behavior that caused his own dismissal from Harvard, nor his excessive use of alcohol which led to the failure of his marriage and may have contributed to the death of a young lady should be used to form the basis of his legacy.

Somehow, I find it difficult to join our leaders in their admiration of this gentleman.

One Man’s Opinion—Bud Brewer