Archive for the ‘economics’ Category

Why Importing Foreign Doctors may not fix the shortage.

Sunday, April 17th, 2016

MoS2 Template Master

The coming doctor shortage that I have previously written about might be dealt with as Canada did with theirs some years ago, by importing foreign medical graduates. Britain has adopted a similar plan as thousands of younger doctors plan to leave Britain.

How is the plan to import foreign doctors working out ?

Not very well.

Nearly three-quarters of doctors struck off the medical register in Britain are foreign, according to shocking figures uncovered in a Mail on Sunday investigation.
Medics who trained overseas have been banned from practising for a series of shocking blunders and misdemeanours.
Cases include an Indian GP who ran an immigration scam from his surgery, a Ghanaian neurosurgeon who pretended he had removed a patient’s brain tumour, and a Malaysian doctor who used 007-style watches to secretly film intimate examinations with his female patients.

First of all, foreign medical schools are often limited in real experience and students often graduate with nothing beyond classroom lectures.

This was the case with Mexican medical schools, like that in Guadalajara where many American students attended. A program was devised to provide them with a year of clinical training before they could be licensed.

The revelations come just a week after it emerged health bosses want to lure 400 trainee GPs here from India, to help ease short-staffing in the NHS.
Last night Julie Manning, chief executive of think-tank 2020 Health, said: ‘The NHS has thrived on many international doctors coming to work in the UK – but the public needs reassuring they are all truly fit to practise in the first place.’

Of course, the foreign doctors have their defenders.

Dr Ramesh Mehta, president of the British Association of Physicians of Indian Origin, admitted ‘there is a problem’ with the high strike-off rate among foreign doctors. But he claimed racism played a part.

We have a similar problem with affirmative action medical graduates but the figures are not available about their rates of license revocation. For example, the The Alan Bakke case went to the US Supreme Court, which eventually ruled in his favor. By the time the court ruled, years had gone by and Bakke eventually did gradate from medical school and has practiced quietly ever since.

However, a black student admitted by the program that denied Bakke a place was subsequently prosecuted for gross negligence and his license removed. Affirmative Action has been vigorously defended.

An admissions process that allows for ethnicity and other special characteristics to be used heavily in admission decisions yields powerful effects on the diversity of the student population and shows no evidence of diluting the quality of the graduates.

However, the conclusion does not match the findings in the study.

Regular admission students had higher scores on Parts I and II of the National Board of Medical Examiners examination, and special consideration students were more likely to repeat the examination to receive a passing grade.

The article goes on to explain that There was no difference in completion of residency training or evaluation of performance by residency directors.

A friend of mine was the Chairman of the Department of Surgery at a UC medical school who decided to fire a black female resident for incompetence. He was advised by the UC system and the other department heads that he would lose a lawsuit if she filed one. She did, in fact, file such a lawsuit alleging racial prejudice (of course). The department chair was able to successfully defend his decision but the fact that no one else was willing to try explains the finding that There was no difference in completion of residency training or evaluation of performance by residency directors.

I have had the experience of being a Surgery Department Chair in a community hospital confronted with the application of a known incompetent surgeon. The same factors apply to those known to be dishonest. A request for a letter of reference from the department in which the applicant trained usually results in a response that states, “The applicant completed the residency from X date to Y date.” No other information is provided and a further request is usually answered by “The matter is in litigation,” or words to that effect. This applies to all such applicants but affirmative action individuals are almost impossible to find negative information on even if the “grapevine” has provided warnings.

The general concern can be found, but details are thin on the ground.

A quick scan of the documents reveals that white students applying to medical school with a GPA in the 3.40-3.59 range and with an MCAT score in the 21-23 range (a below-average score on a test with a maximal score of 45) had an 11.5% acceptance rate (total of 1,500 applicants meeting these criteria). Meanwhile, a review of minority students (black, Latino, and Native American) with the same GPA and MCAT range had a 42.6% acceptance rate (total of 745 applicants meeting these criteria). Thus, as a minority student with a GPA and MCAT in the aforementioned ranges, you are more than 30% more likely to gain acceptance to a medical school.

There are other sources of the facts, but they don’t appear in mainstream publications. Social Justice keeps most of these concerns underground.

A friend of mine, who is Cuban born and an immigrant as a child, applied to UC, San Francisco medical school. This was in the 1970s. Affirmative Action was well underway. He waited several weeks, then months, to hear if he had been accepted. Finally, he drove to San Francisco and asked someone in the Admissions Office what had happened to his application. He was told that it was in the “Hispanic Applicant Committee.” Having no idea what criteria such a committee might be using to determine who should be admitted, he asked if his application could just be considered as a “white” applicant. This was done and he received a letter approving his admission a few days later.

The pressure is now on medical education to provide the hundreds of thousands of new doctors this society believes it needs. Productivity of the present graduates is well below that of my generation. Some of that is the disappearance of fee-for-service practice which motivates work ethic. Some of it is a result of the 60% female medical school classes.

The female doctor population is acknowledged to work less.

Today, however, increasing numbers of doctors — mostly women — decide to work part time or leave the profession. Since 2005 the part-time physician workforce has expanded by 62 percent, according to recent survey data from the American Medical Group Association, with nearly 4 in 10 female doctors between the ages of 35 and 44 reporting in 2010 that they worked part time.

This was the reason why medical school admissions committees “discriminated” against female applicants in the 1960s when I was a medical student. They were concerned, even then, about a doctor shortage and assumed women would stop working to have children or practice part-time.

They were absolutely correct.

Canada is finding some productivity issues and even some explanation.

a fee for service model, and its inherent encouragement of increased productivity through increased volume of patients, a significant shift away from this single model is taking hold.

This, of course, will not deter the Social Justice types as more doctors with less productivity is somehow more efficient than paying doctors more to encourage higher work loads. Socialism is the aim, productivity will have to take care of itself.

In the meantime, PHYSICIANS WHO DID not attend medical schools in the United States or Canada, referred to as “international medical graduates (IMGs)”, play an integral role in the U.S. health care system. Such physicians now represent approximately 25 percent of practicing doctors nationwide.

It’s going to increase.

Government: the things we do together.

Wednesday, April 6th, 2016

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Barack Obama is fond of describing government this way.

As President Obama said the other day, those who start businesses succeed because of their individual initiative – their drive, hard work, and creativity. But there are critical actions we must take to support businesses and encourage new ones – that means we need the best infrastructure, a good education system, and affordable, domestic sources of clean energy. Those are investments we make not as individuals, but as Americans, and our nation benefits from them.

That was a reaction to Romney’s criticism of his silly comment.

I prefer the quote attributed to Washington.

“Government is not reason, it is not eloquence,—it is force! Like fire, it is a dangerous servant, and a fearful master; never for a moment should it be left to irresponsible action.”

Now, we see a new imposition.

The Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interests of clients. What Labor doesn’t say is that the rule carries such enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts. Middle-income investors may be forced to look elsewhere for financial advice even as Team Obama is enabling a raft of new government-run competitors for retirement savings. This is no coincidence.

Labor’s new rule will start biting in January as the President is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But Labor has already proposed waivers from the federal Erisa law so new state-run retirement plans don’t have the same regulatory burden as private employers do.

State run retirement plans. What could go wrong ? Well, we saw one version in Cyprus in 2013.

European leaders reached an agreement with Cyprus early on Monday morning that closes down the island’s second-largest bank and inflicts huge losses on wealthy savers.

Those with deposits of less than €100,000 (£85,000) will be spared, but those with more than €100,000 – many of them Russian – will lose billions of euros under draconian terms aimed at preventing the Mediterranean tax haven becoming the first country forced out of the single currency.

The deal is expected to wreak lasting damage on the Cypriot economy, which has grown reliant on offshore banking and Russian money. Analysts said Cyprus could see its economy contract by 10% or more in the years ahead.

Well, those Russian oligarchs deserved it. Maybe American companies attempting “inversion” deserve it too.

CEOs have learned to keep mum in the Obama era, lest their companies be punished like J.P. Morgan after Jamie Dimon criticized some parts of Dodd-Frank. So it’s worth noting the candid reaction after a new Treasury rule scuttled the merger between Pfizer Inc. and Allergan PLC.

The companies ended their $150 billion tie-up after Treasury Secretary Jack Lew issued new rules that made it harder for companies like Pfizer to move to Ireland to legally lower their taxes. Pfizer will have to pay Allergan a breakup fee of $150 million, though Allergan shares are still down more than $10 billion since the Treasury ambush.

I am not a slavish advocate of corporate tax avoidance but we are in an era of confiscation.

“If the rules can be changed arbitrarily and applied retroactively, how can any U.S. company engage in the long-term investment planning necessary to compete,” Mr. Read writes. “The new ‘rules’ show that there are no set rules. Political dogma is the only rule.”

He’s right, as every CEO we know will admit privately. This politicization has spread across most of the economy during the Obama years, as regulators rewrite longstanding interpretations of longstanding laws in order to achieve the policy goals they can’t or won’t negotiate with Congress. Telecoms, consumer finance, for-profit education, carbon energy, auto lending, auto-fuel economy, truck emissions, home mortgages, health care and so much more.

Now, they want everypne to “invest” in state run “retirement programs.” CalPERS has not distinguished itself, except perhaps in corruption.

After spending years dogged by unpaid debts, California labor leader Charles Valdes filed for bankruptcy in the 1990s—twice. At the same time, he held one of the most influential positions in the American financial system: chair of the investment committee for the California Public Employees’ Retirement System, or CalPERS, the nation’s largest pension fund for government workers. Valdes left the board in 2010 and now faces scrutiny for accepting gifts from another former board member, Alfred Villalobos—who, the state alleges, spent tens of thousands of dollars trying to influence how the fund invested its assets. Questioned by investigators about his dealings with Villalobos, Valdes invoked the Fifth Amendment 126 times.

Well, it is California where Hispanics, especially illegals, run the state.

Last month the board of California’s new “Secure Choice” retirement plan wrote to state legislators about their “exciting win” in Washington. They reported that employers enrolling workers in the new government-run plan “would have no liability or fiduciary duty for the plan.” Score! The California bureaucrats added that “we have been given the green light to auto-enroll workers into an Individual Retirement Account (IRA).”

What could go wrong ?

The Doctor Shortage, discovered once more.

Friday, April 1st, 2016

33 - Lister

I have previously written posts about a coming doctor shortage.

They assume that primary care will be delivered by nurse practitioners and physician assistants. They are probably correct as we see with the new Wal Mart primary care clinics.

The company has opened five primary care locations in South Carolina and Texas, and plans to open a sixth clinic in Palestine, Tex., on Friday and another six by the end of the year. The clinics, it says, can offer a broader range of services, like chronic disease management, than the 100 or so acute care clinics leased by hospital operators at Walmarts across the country. Unlike CVS or Walgreens, which also offer some similar services, or Costco, which offers eye care, Walmart is marketing itself as a primary medical provider.

This is all well and good. What happens when a patient comes in with a serious condition ?

The health policy “experts” have been concerned to train “lesser licensed practitioners” and have pretty much ignored primary care MDs except to burden them with clumsy electronic medical record systems that take up time and make life miserable.

I repeatedly ask medical students if they would choose a career in primary care if it would completely erase their student loan debt. A few hands go up, but not many. In fact, for a while now, the federal government has dedicated millions of dollars to repaying loans for students who choose primary care. Yet residency match numbers show that the percentage of students choosing primary care is not increasing. Though loan forgiveness is a step in the right direction, medical students realize that by choosing a more lucrative specialty, they can pay off their loans just fine.

I proposed years ago, a health reform that resembled that of France where medical school is free. It could be arranged that service in primary care, low income clinics would give credit against student loans. Nothing happened. Except physician income has declined. And tuition has increased.

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Unions and the march of robots.

Wednesday, March 30th, 2016

port
California has now decided to impose a a $15 per hour minimum wage on its remaining business economy.

Denial of consequences is an important part of left wing philosophy.

“California’s proposal would be the highest minimum wage we have seen in the United States, and because of California’s sheer size, it would cover the largest number of workers,” said Ken Jacobs, chairman of the UC Berkeley center. “This is a very big deal for low-wage workers in California, for their families and for their children.”

Implicit in all the assumptions is the belief that employers will not adjust by reducing the number of minimum wage employees they have.

The UC Berkeley estimate also includes some who earn slightly more than the lowest wage and stand to benefit from a ripple effect as businesses dole out raises to try to maintain a pay scale based on experience, Jacobs said.

If Brown’s plan passes, 5.6 million low-wage workers would earn $20 billion more in wages by 2023, according to the UC Berkeley analysis. It assumed no net jobs would be lost as businesses look to trim costs.

The experience in other places has not been positive.

Even a former chairman of President Obama’s Council of Economic Advisers, Alan Krueger, has cautioned recently that “a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”

Krueger is the economist whose “study” of the effect of minimum wage increases in fast food industry has been debunked as invalid.

But Card and Krueger’s conclusion is that there’s no effect, not that increases in the minimum wage increase employment as a general rule. “We believe that this research provides fairly compelling evidence that minimum-wage increases have no systematic effect on employment,” they write in their 1995 book, “Myth and Measurement: The New Economics of the Minimum Wage.” They also write, “On average, however, our findings suggest that employment remains unchanged, or sometimes rises slightly, as a result of increases in the minimum wage.” It would be fair for Hanauer to cite the individual studies showing an increase in employment, but to characterize Krueger and Card’s work on a whole as showing an increase in employment resulting from a minimum wage increase is inaccurate.

In less polite terms, it’s bunk ! Newer studies with better methods have shown That employment is reduced.

Second, the studies that focus on the least-skilled groups provide relatively overwhelming evidence of stronger disemployment effects for these groups.

Now, we come to the larger issue the entire “Blue Model” of employment and politics.

The teachers’ unions won a temporary victory to force non-members to pay “agency fees” involuntarily, a decision that resulted from the death of Antonin Scalia last month.

With the absence of the late Antonin Scalia’s reliably-conservative vote, labor unions clenched an unexpected Supreme Court victory on union fees for government workers.

With agency fees – and the structure of union dues – remaining intact, union leaders hailed the court’s affirmation but warned there could be further challenges ahead.

The union case is among a handful of key disputes in which Scalia’s vote was expected to tip the balance toward a result that favored conservatives.

Some non-union teachers in California sued over the fair share fees, claiming that the fees are unconstitutional and violate their freedom of speech and association.

That decision will probably stand until a new Justice is confirmed and a Hillary Clinton presidency would keep the matter going. What about the rest of the world ?

But in the larger context the public unions greatest enemy isn’t the ghost of Antonin Scalia but the onslaught of technology. Recently, the mighty International Longshore and Warehouse Union (ILWU) was forced to let giant robots handle cargo in the port of Los Angeles. “At one of the busiest shipping terminals in the U.S., more than two dozen giant red robots wheeled cargo containers along the docks on a recent morning, handing the boxes off to another set of androids gliding along long rows of stacked containers before smoothly setting the boxes down in precise spots,” wrote the Wall Street Journal. “‘We have to do it for productivity purposes, to stay relevant and to be able to service these large ships,’ said Peter Stone, a member of TraPac’s board.”

About ten years ago the Longshoreman’s union struck the port of Los Angeles to try to keep out GPS devices to locate containers.

Traditionally, clerks had climbed around containers to identify them and mark their location. Like Luddites in the 18th century, they attempted to keep their 80 jobs by paralyzing the worlds busiest port.

The union says that over 51 permanent positions have been lost to outsourcing in recent years — a claim that the Harbor Employers refutes. According to the Harbor Employers, those 51 individuals either “retired with full benefits, quit, or passed away during the past three years.”

It is unclear when the strike will end but the Port of LA is urging both sides to come to an agreement promptly for the sake of international commerce.

But the union says the workers are standing up to some of the world’s largest shipping lines to protect the future of American jobs in the industry. “We just reached the point where somebody had to stand-up and draw the line against outsourcing, because these companies will eventually take all the good jobs,”said Fageaux.

According to its website, the Port of Los Angles is responsible for 1.2 million jobs in California and 3.6 million jobs across the country.

No matter. Those 51 jobs were important !

Eventually, the union lost. Now new troubles are coming.

In the end, even those advantages proved insufficient to stop automation. There will be pressure to deploy more robots. The “TraPac site is one of only four cargo terminals in the U.S. using the technology. That is fewer automated terminals than there are at the Port of Rotterdam in the Netherlands alone.” The ILWU is fighting a rearguard action; its members are training on automated terminals “to ensure there’s a future for the workers”. And probably to keep alive the possibility of paralyzing the docks via strike by console operators.

None of this can disguise the fact is that the glory days of union crane jobs are over. The CEO of Carl’s Jr, a hamburger chain, predicts that fast food restaurants of the near-future will have no human employees. A special report in the New York Times says “the robots are coming to Wall Street.”

Within a decade … between a third and a half of the current employees in finance will lose their jobs to … automation software.

Already, CAT scans are read by radiologists in India. Radiologists who have no local credentialing and who are unknown. All X-rays now are digital and can be transmitted across the world.

For the poor the citizenship deal is votes in exchange for welfare or sinecures. For the financially better off it is campaign contributions in exchange for crony capitalist opportunities. The Friedrichs vs California Teachers Association is an example of the latter, with the Supreme Court unable to reject a transaction that is ultimately unsustainable.

Technology may have changed the debate around closed union shops, quotas, identity politics and mandatory minimum wages from one of ideology to economics. What’s the use of ideological policies, if they’re can’t deliver the goods? If the public employee’s unions can do no better at protecting their fiefdom than the ILWU, if immigrants from Mexico can find no employment because robots are doing all the work then what will the politicians promise?

Yes. What can they promise ?

More on where Trump came from.

Monday, March 7th, 2016

There is increasing panic among the GOPe about the possibility that Trump could win the nomination. The “Anyone But Trump” fixation is obsessing the usual suspects.

Megan McArdle: As I see it, there are basically three strategies you can follow:

Anyone but Trump: It doesn’t matter, as long as you vote against Trump. Democrats in open primary states can play, too.
Vote the leader: Pick the winner in your state, and force the nomination selection to the convention.
Attempt to generate an actual alternative front-runner by voting for the national poll leader, or the most plausible candidate — probably Marco Rubio, given that he seems to have the most support from the highest number of GOP coalitions, but possibly Ted Cruz, since he appears to be the next most appealing to Trump voters.
I’ll just start by asking: Which of these would someone follow if their main priority is to defeat Trump? Or am I thinking about it all wrong?

Sean Trende: No, I think you have it basically right. I actually think that, for now, their best chance lies behind Door No. 2.

Why are the elites so obsessed with keeping Trump away from the levers of power ? This is not limited to the USA. Germany is having its own voter revolt.

The anti-immigrant AFD – Alternative for Germany – party has scored massive gains in municipal weekend elections which reflect growing public anger at the refugee policies of Chancellor Angela Merkel.
The polls for councils in the state of Hesse saw the AFD make significant inroads on the two main established parties – Merkel’s conservative CDU and the centre-left SPD – to come in third with 13.2 percent of the vote, knocking the environmental Greens into fourth place.
Frankfurt CDU politician Markus Frank said: ‘The preliminary result of the AfD is frightening. I had expected a maximum five percent.’

Where does this voter anger come from ?

Maybe it is one manifestation of the Principle Agent Problem.

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The Transformation of Economics.

Tuesday, March 1st, 2016

A great piece in the Wall Street Journal today about what has happened to Economics and Economics education.

I took an Economics class in college in 1957 and it changed me to a Republican. My first vote was for Richard Nixon in 1960. My family was furious as they thought we were related to the Boston Kennedys and they had always been Democrats. I wonder if an Economics class would have that effect today?

And that political economy and my assessment of it has changed over a career spanning more than half a century. Here are five developments I would emphasize:

I agree with his appraisal.

1.• Diminishing returns to research. A core economic principle is the Law of Diminishing Returns. If you add more resources, such as labor, to fixed quantities of another resource, such as land, output eventually rises by smaller and smaller amounts. That applies—with a vengeance—to academic research. Teaching loads have fallen dramatically (although the Education Department, which probably can tell you how many Hispanic female anthropologists there are teaching in Arkansas, does not publish regular teaching-load statistics), ostensibly to allow more research. But the 50th paper on a topic seldom adds as much understanding as the first or second.

This has been characteristic of Medicine, as well as other academic subjects.

Emory University’s Mark Bauerlein once showed that scholarly papers on Shakespeare averaged about 1,000 a year—three a day. Who reads them? How much does a typical paper add at the margin to the insights that Shakespeare gave us 400 years ago?

That isn’t he has shown.

The attitude touches the President’s favorite pastime. Tevi Troy reported in Commentary how much Obama enjoys television, particularly SportsCenter and the middlebrow series Homeland and Mad Men. The New York Times added Breaking Bad and The Wire in its article “Obama’s TV Picks: Anything Edgy, with Hints of Reality,” and while it warned of the foolishness of “psychoanalyzing” a president based on “the books he reads or the music he listens to or the television shows he watches,” the story mentions not a single book. One would expect Marxists, feminists, queer theorists, post-colonialists, anti-imperialists, and media theorists to chide Obama for his bourgeois, masculinist taste, but as far as I know they have remained silent.

Obama’s taste runs more to sports and rap music.

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Trump and China

Monday, February 15th, 2016

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Trump has, famously, gone after China on its trade policy.

In January 2000, President Bill Clinton boldly promised China’s inclusion in the World Trade Organization (WTO) “is a good deal for America. Our products will gain better access to China’s market, and every sector from agriculture, to telecommunications, to automobiles. But China gains no new market access to the United States.” None of what President Clinton promised came true. Since China joined the WTO, Americans have witnessed the closure of more than 50,000 factories and the loss of tens of millions of jobs. It was not a good deal for America then and it’s a bad deal now. It is a typical example of how politicians in Washington have failed our country.

There is an interesting analysis of China’s stumbling economy in the Observer today.

Here is a top ten guide for the perplexed.

Central Planning: Central planning, central planning. The history of the abject failure the Soviet Union’s five-year plans should tell you everything. Command and control economies that report to one man (in a nation of 1.3 billion people) are doomed from the start. Top down economic decisions often look bold and start out highly stimulative, but then degenerate into inefficiency, waste, politics and fraud.

Political Corruption: As the command and control economy generates liquidity, the demand and direction of the distributed capital becomes a political tussle. Decisions on how much steel, cement, coal, glass solar panels, high speed trains and shopping malls—in short everything—are not done in China as a cost benefit analysis by risk capital, a job difficult enough in itself. (Witness the capitalist economies’ booms and busts.) In China, this liquidity was allocated by political muscle, massive bribery and kickbacks, rather than economic justifications.

Basic Gangsterism: Counterfeiting, knockoffs, copyright infringement, theft of intellectual property – these were a part of the booster rockets of China’s economic rise. It was all supposed to go away after China joined the WTO in 2001. It didn’t. It just became more institutionalized. Foreign companies needed Chinese “partners” in auto production, healthcare and technology. These “partners” crippled the potential productivity of the investments and led to frequent disputes and even more corruption… as in the GlaxoSmithKline scandals.

There are a total of nine reasons, many addressed in Trump’s piece above.

Now, the economy of China may be in free fall.

Chinese central bank governor Zhou Xiaochuan has accused “speculative forces” of targeting the country’s currency, the yuan.
He said there was no reason for the yuan to keep depreciating in value and that China would not let international speculators dominate market sentiment.

Mr Zhou’s remarks come as Chinese markets prepare to reopen on Monday after a week-long New Year holiday.
Efforts to defend the yuan have eroded China’s foreign currency reserves.

Another reason quoted by the Observer is something I have previously posted on.

Jack Lew, speaking at the Brookings Institution in July, confidently assured that Americans were immune from weakening markets in China.

“I will say that China’s markets still are pretty much separated from world markets,” the secretary of Treasury, said. “They’re, obviously, moving towards being more integrated, but right now they’re not.”

I guess that statement is “inoperative” right now.

What actually happened is that China’s stock market began as a Potemkin project to assure the world of Beijing’s strength. Chinese investors knew the government would be propping up a mere facade; that the worse China’s economy got, the more the Communist Party would paint the facade. Harlan writes:

Let’s take a moment to state clearly that the stock market and the “real economy,” particularly in China, don’t always dance together. Until 2013, China’s major indexes were among the poorest-performing — which made almost as little sense as what happened next.

China is not a “transparent economy.”

Reckless Gamblers: How did China’s debt-to-GDP ratio go to 240% from 160% in nine years? How are nonperforming bank loans (if honestly tallied) hovering around 20 percent? There is a recklessness in early stage wealth. It happened in England in the 18th century as exemplified by the South Sea’s fraud and a hundred frauds like it. The recent Sino-Soviet forest stock fraud is an exact mirror. Rapid wealth produces intoxicated investors prone to scams. Remember how the Earl of Grantham in Downton Abby invested a fortune in a fraudulent American railroad. I wonder if there is a Chinese translation of Trollope’s “The Way We Live Now”?

China has a small very rich segment of their people who are giddy with riches. They have been foolish with their investments.

China became a binge investor in absurd countries and silly projects. As if to poke the U.S (its largest single-country trading partner) in the eye, China sidled up to Venezuela of all places. Instead of buying oil on the open market, they went deep into infrastructure projects, loans and even endorsed the psychotic foreign policy rantings of Hugo Chavez. No rational government, unless intoxicated by its economic prowess, would do that. The China Syndrome was also applied to Sudan, Zambia, Angola and Nigeria. Look at the bankrupt failed resort in the Bahamas, Baha Mar, if you want to see what “binge capital” looks like.

Trump may be correct but it may not matter.

The Coming Financial Armageddon.

Thursday, January 7th, 2016

An interesting piece in New York magazine describes the opinions of the man who wrote the book, The Big Short.

He is not optimistic.

Dodd-Frank really worked, and they kind of disagreed with the end of the movie, which implies that this is all going to happen again.
It sort of worked. One thing it has not changed is the sheer size of these institutions, they’ve gotten bigger rather than smaller. And I don’t understand that , I would have thought that from Too Big To Fail we would have found a way to make them small enough so that it was ok for them to fail. And know there’s all this complicated language about how you can resolve them in bankruptcy but I don’t believe it, and the markets don’t believe it. The bigger thing is — I regarded this crisis at bottom as a problem of incentives. People behaved badly because they were incentivized to behave badly, and the incentives haven’t really changed that much.

No, they haven’t and ZIRP is one reason. ZIRP is “Zero Interest Rate Program.”

I think they should have broken up the banks.

And in your opinion, why didn’t that happen?
It didn’t happen because the Obama administration decided that it was worse than the course of action they took. They considered it, kind of. If you asked Tim Geithner why it didn’t happen, he would say how am I going to do that? I am going to have to nationalize these banks, and then break them up. Well, we’re really not equipped to run the entire financial system out of the Treasury. And the system is in such disarray and chaos that we are more likely to create more crisis, than resolve the crisis if we do that. Which is not a terrible argument.

Geithner is, of course, the villain of Sheila Bair’s book, “Bull by the Horns.” My review of her book points out this statement.

Her tenure was stress filled and some of that stress came from the actions of soon-to-be Treasury Secretary Tim Geithner. The story opens in the crisis of late 2008 when the TARP legislation was first defeated by the House, then finally passed. She notes that the purpose proposed for the bill was immediately abandoned after it was signed. It was supposed to fund purchase of the toxic assets held by banks and by investors but quickly became a bailout for the big banks, judged too big to fail. Much of her time was spent fending off Geithner as he seemed to be obsessed with the welfare of CITIBank, a huge and weak international player. She is very critical of his efforts and of the CITIBank management.

Soon after this he became Treasury Secretary for Obama. Like a lot of people, he was thinking this.

Another kind of reform, which would eventually cause them to shrink a lot, would be vastly increasing the capital requirements, which has been floated by people, require them to hold not just about 7 percent or 6 percent but 20 percent, and what happens is they’d become a lot less profitable, they can’t take big big bets and no one would want to invest in them or work for them. But that has been roundly defeated at the regulatory level. I think, beneath that, the bigger problem is, virtually everybody at the table, even well-meaning government employees, when they are talking about what to do about these places, have — even if they aren’t thinking about it consciously, cannot help but consider the likelihood that the way they are going to make a living, a very good living, when they get done with government work, is to go work for one of these places.

That is called Moral Hazard and it has defeated any attempt at reform. And it may now be too late to fix it.

Analysts also point to concerns over Chinese market regulators, who they believe do not appear to have a good grasp of the market, even with the introduction of the circuit breakers. In an attempt to stabilize markets, China’s securities regulator has issued new rules to restrict the number of shares major shareholders in listed companies can sell every three months to 1 percent.
Marc Ostwald, a strategist at ADM Investor Services, believes that Soros’ comments — alongside a gloomy report Wednesday from the World Bank — only serve to cast a “long shadow” over global markets.
“It should be noted that the current turmoil distinguishes itself from 2008, when reckless lending, willful blindness to a mountain of credit sector risks and feckless and irresponsible regulation and supervision of markets were the causes of the crash, given that central bank policies have been encouraged and been wholly responsible for the current protracted bout of gross capital misallocation,” he said in a morning note.

Why is this different from 2008 ? It isn’t.

people didn’t want to know there was a bubble in the housing market, even though everyone knew something bad was going on.
It was really true, I remember coming across this phenomenon, on the wrong side of things: People were just thinking, “This doesn’t have to last very long for me to do well. And if it all goes down it’s not going to affect me. So why think about it too much?” There’s a great line in the movie: “You tell me the difference between corrupt and stupid and I’ll have my wife’s brother arrested.”

This explanation is still relevant.

For five years, Li’s formula, known as a Gaussian copula function, looked like an unambiguously positive breakthrough, a piece of financial technology that allowed hugely complex risks to be modeled with more ease and accuracy than ever before. With his brilliant spark of mathematical legerdemain, Li made it possible for traders to sell vast quantities of new securities, expanding financial markets to unimaginable levels.
His method was adopted by everybody from bond investors and Wall Street banks to ratings agencies and regulators. And it became so deeply entrenched—and was making people so much money—that warnings about its limitations were largely ignored.
Then the model fell apart. Cracks started appearing early on, when financial markets began behaving in ways that users of Li’s formula hadn’t expected. The cracks became full-fledged canyons in 2008—when ruptures in the financial system’s foundation swallowed up trillions of dollars and put the survival of the global banking system in serious peril.

That was part of it. The rest was the corrupt bargain that Democrats had with lobby groups for minorities.

I wrote about this in 2008 as it was happening.

Things did not begin to heat up again until the end of the Clinton Administration. The internet stock bubble left a lot of people with money to invest but few good opportunities. Many had taken their money out of the stock market after making plenty of money. Secondly, after 9/11, the Bush Administration was determined to avoid a recession brought on by the huge capital loss of the WTC collapse. The Panic of 1907 was precipitated by the San Francisco Earthquake and the huge losses to insurance companies. The Great Depression was partly a reaction to the default of war loans from World War I and the reparations demanded of Germany. There was fear that another severe financial panic would follow 9/11. In fact, that may have been a large part of the plan by Osama bin Laden. As a result, the banks had a lot of money to lend and they soon ran out of worthy borrowers. What to do ? Lend it to people with less than sterling credit. After all, houses were going to keep going up in price, weren’t they ?

Enter the chislers and scammers. Some of whom were former Clinton Administration members who got themselves appointed to the boards of the two big mortgage lenders. Did they have a broad background in mortgage banking ? No. They were politicians, like Jim Johnson who recently left the Obama campaign where he had been serving as the co-chair to vet potential VP nominees. What was his background ? Politics, not finance.

James A. Johnson is a United States Democratic Party political figure. He was the campaign manager for Walter Mondale’s failed 1984 presidential bid and chaired the vice presidential selection process for the presidential campaign of John Kerry. In the 2008 election, he is a member of the vice-presidential selection process for the presumptive Democratic nominee, Senator Barack Obama.

From 1991 to 1998, he served as chairman and chief executive officer of the Federal National Mortgage Association (Fannie Mae), the quasi-public organization that guarantees mortgages for millions of American homeowners. Previously, he was vice chairman of Fannie Mae (1990-1991) and a managing director with Lehman Brothers (1985-1990).

The rest is history but much of it is at that link.

Is the Ryan budget the final gasp of the government unions ?

Sunday, December 20th, 2015

As usual. Richard Fernandez has a unique view of current events. He compares the present federal government to Boss Tweed’s Tamany Hall.

But in actuality the impetus for moderating political excess often comes from the elites themselves when mismanagement finally becomes so bad it threatens the survival of everyone.

Until things reach the point of failure mismanagement has the effect of leaving voters no alternative but content themselves with the opposition party. Republican voters may have been disappointed and outraged at the perceived sellout by a Paul Ryan-led Congress to the Obama administration. “It was another Republican “compromise” meaning Democrats got every item they asked for,” said the Drudge Report.

Paul Ryan has engineered a “compromise” with Democrats that gives them everything they wanted.

Today, he defended it on Meet The Press.

And in divided government you don’t get everything you want. So we fought for as much as we could get. We advanced our priorities and principles. Not every single one of them, but many of them. And then we’re going to pick up next year and pick up where we left off and keep going for more.

Is this true ? I doubt it.

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Two Nations…

Sunday, November 8th, 2015

two nations

We have now become two nations, divisible, without liberty and justice for all.

As usual, I read another good Belmont Club post.

I get discouraged about the future when I see the stupidity of the youngest generation in college. The left is worried that Republicans hold most state offices. Why has this happened ?

That dominance — and what it means to the policy and political calculations and prospects for both parties at the national level — is the single most overlooked and underappreciated story line of President Obama’s time in office. Since 2009, Republicans have made massive and unprecedented gains at the state level, gains that played a central role in, among other things, handing control of the U.S. House back to the GOP in the 2010 election.

It’s just inexplicable. Why would the country that elected Barack Obama twice choose Republicans for those offices closest to their own lives ?

While the story at the national level suggests a Republican Party that is growing increasingly white, old and out of step with the country on social issues, the narrative at the local level is very different. Republicans are prospering at the state level in ways that suggest that the party’s messaging is far from broken.

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