Obamacare . . . is bad economics

Here are a couple reasons why I feel this way . . .

1. The plan requires $1 Trillion in new spending. One Trillion dollars of new spending . . . at a time when our budget deficit is expected to be close to $2 Trillion this year and $1.5 Trillion next year and $1 Trillion in 2011. All told, we are projected to rack up 10 Trillion dollars in new debt in the next eight years. That's a lot of beakers, my friends.

Is it just me or does it seem that maybe now might not be the absolute best time to be proposing new Trillion dollar social programs. We are not exactly flush. By the way, we all know that if politicians say something will cost $1 Trillion, it will really cost (at least) twice that. And, as with all entitlement programs ever enacted . . . it will be permanent and it will be very difficult to modify.

2. Tax Plan. The Democrats in the House have a plan to address part of this dilemma. They plan to tax upper income Americans at rates of over 5% on income over a certain threshhold. To pay for half of the Trillion dollar plan. The other half is going to come from "efficiency gains" (whatever the heck that means).

By the way, this plan to pay for health insurance by taxing the top 1% of taxpayers with a surtax is in direct response to polling figures that show that Americans want health insurance reform . . . as long as someone else is paying for it. So, the Democrats took care of that little problem by foisting the bill onto the tiny sliver of America at the top of the income scale. That's leadership for you . . . or at least that's one version of leadership (the kind that doesn't lead, but follows.)

Some people call this plan “progressive”. Somehow, the thinking goes, it is “progressive” to transfer wealth from one group of people (wealthy individuals) to another group of people (less wealthy Americans). Rather than everyone pays their own way and the American people will together use tax receipts to fund various social programs . . . the approach we are flirting with is . . . everyone who can afford it pays their own way . . . and then this tiny minority of taxpayers pays for everyone who can’t. The inherent problem with this approach, besides the obvious one of fairness (why don’t these top tier taxpayers get to keep what they earn? Did they do something wrong, or is our system designed to reward those that produce more economic benefit?) is that this type of thinking pits this tiny minority in the top bracket against everyone else. Not just those that will receive the transfer of wealth, but those in the middle who don’t have to pay for it because the top tier of taxpayers is footing the bill. Why not eat more ice cream if someone else is getting the calories and the fat?

In my view, this is bad public policy. It becomes someone else’s problem to pay for all these decisions in Washingon and that someone is a very small minority of citizenry. Which means that more and more will be piled on to them (because it is politically expedient to do so). That means more surcharges (why not, they can afford it . . . they make so much money.)

And, then, the golden goose stops laying eggs. That’s what has happened in California where 144,000 taxpayers in a state of 38 Million people, pay more than 55% of state income taxes. The home state of Nancy Pelosi and Henry Waxman is very progressive. Then those taxpayers experience economic set-backs and guess what? There is a huge hole in the budget because California was taxing the top brackets so heavily that virtually no one else had to share in the burden. It works until it doesn’t. And when it stops working . . . it stops in a big way.

3. Late last week, the Congressional Budget Office (bipartisan organization funded by Congress to get better (i.e. nonpolitical) numbers on budgets and economic conditions) came out with the conclusion that none (as in not one) of the various health insurance plans being discussed in the House, Senate or White House . . . will actually reduce expenses, contrary to the “party line” coming out of the Obama White House on this issue. As if we needed to be told this.

But the point is an important one. These new spending programs will not be short term pain for long term gain, as we are being sold . . . I mean . . . told. We don’t have to spend now to save later. We have to spend now to . . . spend more later. That is what the CBO has said about these cockamamie plans.

Anyone surprised by this? Didn’t think so.

Wrong on Goldman

A number of you have made observations about the Goldman stock sales that are more likely better explanations of those sales than my posting so . . . I was wrong (I think). Or at least I am willing to entertain that the explanation was more nuanced than I originally proposed. Here are the comments (from those of you who still have not figured out how to post a comment . . . )

Commenter #1
I think you missed on this one. The Goldman insiders sold for a variety of reasons, including margin calls, funding obligations, diversification…maybe even a little fear. However, the decisions of individuals does not alter the strength of the institution. Whether or not Goldman is fairly priced in this new world, their market presence in undeniable and their collective intelligence remains impressive. Ask yourself this question: IF you want to be invested in the financial sector, with whom would you RATHER be invested in than GS?

Commenter #2
I'm no Goldman apologist, but I think you are fuzzing private economic
behavior with the ability of Goldman, as an institution, to make
profits.

I think that individual selling (and $700 million is a rounding error,
in my mind) was attributable to a perfect storm of (i) margin calls,
(ii) too many individual illiquid investments, (iii) inability to pull
capital out of hedge funds and other investments which froze
redemptions, (iv) other short term obligations coming due (the house
in Aspen with a bullet payment due) and (v) smaller bonuses not being
able to finance current cash needs.

I sold at $120 on the way down, and am kicking myself. Of course, I
was feeling pretty smart when GS went to $75.....

Commenter #3
I think it means an amazing number of execs were doubling down with margin accounts that got called. Then they had to sell at the bottom....

Goldman Stock Sales Astounding

Executives at Goldman Sachs apparently sold nearly $700 Million of Goldman stock between September 2008 and April 2009 with the selling peaking between December '08 and February '09 . . . when Goldman traded near record lows.

This is the group of people who want to help us manage our money. They sold their own company's stock, with all the information that they have working at the company . . . at exactly the wrong time. They panicked and sold when they should have been buying by the bushel-full. GS has rebounded quite nicely from late January low of $59 to today's $149. Yet, executives at GS bailed on hundreds of millions worth of their own stock.

Does something strike you as odd about that?

To me, it spells trouble for the retail investor thinking of buying GS.

Woldy

The Victors Write History

Please recall what a certain blogginator wrote on this subject earlier this year on April 23 . . . it is worth reading again. Attorney General Holder is currently contemplating appointing a special prosecutor to investigate decisions relating to interrogation methods made during the Bush Administration, and those individuals who made the decisions.

This is a huge mistake on several levels.

First, the obvious . . . punishing policymakers for making policy during national crises will encourage lack of risk-taking and lowest common denominator decision making. Do we want our leaders afraid to make decisions when we most need them? When the stakes are the highest, don't we want our leaders decisive, and thinking about how to protect our citizens. That is the central, and most important, function of our Federal Government. Above all else, it is to provide us with national defense; to protect us. Appointing this prosecutor will not advance the cause of keeping us safe.

Second reason this appointment, when it occurs (sidebet for lunch with anyone who doubts that it will happen), is a huge mistake is that the underlying motivations behind the appointment are political (and driven by the agenda of fringe political forces) and will doom the rest of the Obama Administration, as long as it lasts, to partisan politics as usual. I thought we were moving away from the politics of destruction, as our President liked to call the prevailing infighting when he was running for President. Appointing a special prosecutor for this looks more and more like the same old story.

Is this what we need? Is this the reason we elected Barack Obama? Didn't he run on a different platform? Rising above this nonsense to "right the ship"?

And if there are any doe-eyed innocents who think the President is not a party to the decision of whether, or not, to appoint . . . think again. This decision will stain the Obama Presidency.

Third reason this appointment is a mistake . . . never underestimate the opposition. If you think you know everything the Bush Administration knows . . . you are deluding yourself. Open this can of worms and it will stink to high heaven. There will be revelations of all sorts of things that the AG and the President did not want to come out. The Law of Unintended Consequences will rule in this case. This will hurt the Democrats chances, and it will injure our country. Airing our dirty laundry in public will not improve our image overseas. It will only serve to provide more fodder for USA-haters who don't give a damn what our well-meaning President is trying to communicate to them. They hate us and want to hurt us.

President Obama's instincts are telling him one thing. His politics are telling him something different. Hopefully he listens to his instincts and urges his AG not to appoint.

Woldy

And Now for Something Completely Different

Yesterday's Michael Jackson-a-palooza was the final effort by those around him to manipulate and use the tragic figure that was MJ for personal financial gain. None of the "celebrity" figures that appeared in that show did it because they were such great friends with Michael Jackson. They did it to get in on the show, man. Good friends don't grieve for the public, in front of 20,000 spectators, and millions of TV-viewers. Good friends don't hoist the poor guy's (golden?) casket up for everyone to gawk at.

I didn't watch the spectacle, but you couldn't avoid the press coverage so I did see a few clips. It was disgusting.

And the hypocracy of it all was equally appalling. Most of the people appearing on that stage would not be caught (on film) in the presence of Michael Jackson for the last 10-15 years. Jesse Jackson wrapping himself around the Jackson Family like a gigantic leech. As if. Wherever there are hot lights, Jesse will not be far. Al Sharpton saying there was nothing strange about Michael Jackson. It was the rest of us who didn't understand. Didn't understand what, Al? Why a 40 year old Michael Jackson paid a family $20 million to settle child molestation charges out of court? Why an adult Michael Jackson had sleepover parties with pre-pubescent boys? But, Michael Jackson was a poor tortured soul. So, all this should go away. He was a genius. So, forget the rest of it. We just don't understand . . . according to the good Reverend Al.

There are many things that are great about our country. Yesterday's show was not one of them.

Woldy

I Have a Job for Bernie!

Now that it is settled that Bernie Madoff has a very long time to contemplate his navel . . . that is to say, the rest of his life . . . it is time to take another look at this guy.

Bernie is an uniquely skilled guy. Let's use him for the greater good of society by focusing his creative energies on . . . the federal deficit. Perhaps there is a way that he can convince people who have a lot of money (i.e. China, Singapore Japan, South Korea, Saudi Arabia, Goldman Sachs Partners, etc...) to "invest" in an unique investment fund which pays a nice dividend. The fund is not redeemable for, let's say 30 years. Also, since this is for greater good, why not make the dividend federal tax-free. The proceeds of the investment fund will be used to pay down first, interest on our national debt and second, debt principal itself. We keep getting more and more investors, or keep opening new funds (which Bernie could market, since he is a master marketer). We can keep this thing going for a long, long time.

Wait a minute!!!

I think I just described Treasury Bills . . .

I'm not saying that T-Bills are a ponzi scheme, but . . . they sort of are, aren't they?

Woldy