Posted by Marc Hodak on March 22, 2010 under Futurama, Unintended consequences | 
So, the Democrats have gotten their legislation. They are promising:
– Lower insurance premiums
– Near universal health insurance coverage
– Preservation of Medicare’s benefits
– Reduction of the budget deficit
– Lower medical costs
Since I am now petrified to put any of my long-term savings into the stock market, I need to find creative ways to boost my returns. So, here is what I’m willing to wager against anyone who wishes to bet against me. By the end of 2014:
– Insurance premiums will be higher
– The percent of America’s uninsured will fall far short of the target
– Medicare’s benefits will be reduced
– The federal budget deficit will be higher than currently projected
– Medical costs will be higher than currently projected
My over/under is that at least four of these five predictions will come true. If you’re particularly gutsy or liberal, then I will be happy to offer 2:3 odds that at least three of these predictions will come to pass, or take 3:2 odds that all five of them come to pass.
To be more specific;
– The national average for health insurance premiums per year is currently $4,824 per person and $13,375 per family; I am wagering that premiums for 2014 will be higher than those numbers plus the rate of inflation. Why? Because insurance companies will be required to accept all comers despite pre-existing conditions (just the kids, at first, then adults in 2014), which will increase their costs, especially in the individual market. Also, to the extent that mandates work to push more people into the insurance pools, greater demand will enable higher prices, notwithstanding the adverse selection that mandates are supposed to fix.
– The bill is expressly designed to drive coverage from the current level of about 85% to “near-universal” level of 95%; I am wagering that the percentage of Americans with health insurance by the end of 2014 will be no higher than 88%. Why? As costs go up (see above), there will be less incentive for healthy individuals to obtain coverage, especially if they can get covered whenever they get sick, which will exacerbate the adverse selection problem insurers now face. The $695 penalties will be tiny compared to the $10,000 premiums, so you’d have to be a sucker to pay the latter when you can get away with just paying the former, and be guaranteed coverage anyway.
– It’s difficult to quantify Medicare benefits; one indicator is the percent of doctors accepting new Medicare patients. That number is currently about 75% nationally. I predict that number will drop, even if Congress adopts the budget-busting repeal of Medicare cutbacks, i.e., the “doc fix,” that was hidden from this legislation to help it’s CBO score. Why? Because Medicare will have to suffer some kind of cutbacks in order to keep costs from exploding as much as they otherwise would, and because one of the cost-control measures is likely to be more bureaucratic hurdles for doctors to leap in an attempt to limit fraud. Both of these trends will continue to turn off doctors, especially the successful, experienced ones who don’t need Medicare patients to maintain their lifestyles (or sanity).
– The fact that Congress will immediately make a mockery of the CBO score by adopting the “doc fix” is just one reason that the deficit will continue to climb. The Obama budget projects $2.1 trillion in deficits over the next two years. I am wagering that deficits will exceed that amount. Why? Congress has consistently underestimated the costs of its entitlement programs. This one, too, will be higher than projected. The higher taxes and fees that Congress is imposing to pay for this law will slow economic growth, resulting in disappointing government revenues.
– According to HHS, the national health expenditures were about $2.4 trillion in 2009, or $8,000 per person, and accounted for about 16% of GDP. They have projected 6.1 percent per year growth over 2010 and 2011, which means the expense will rise to about $9,100 per person for 2011. I am betting that the total cost per person will be higher than that. Why? More money will be funneling into the health care system, which will drive up prices, just as student loan subsidies have driven up college costs. In addition, the regulations flowing out of the 2700 page law like topsy will increase the cost of our health care system, which will be reflected in the prices people will pay as both consumers and taxpayers.
There you have it. Anyone with some liberal convictions and cash can put them both on the line here. Otherwise, this simply serves as a detailed warning for the time when those liberals will claim that nobody could have predicted how badly this law could have turned out. Just before they blame the insurance companies for the outcome.
Don Boudreaux, as usual, sums it up best;
Putting any part of the economy into the hands of politicians is like putting the space program into the hands of astrologers.
Posted by Marc Hodak on March 18, 2010 under Reporting on pay |
The headline and sub-title read:
Govt rewarded bank auditors with big bonuses: As banks binged on risky mortgages, govt rewarded regulators with taxpayer-funded bonuses
Wow, this sounds like it’s gonna be good! Their bonuses were funded by taxpayers! And we didn’t get to vote on them! So, how much did these Wall Street overseers earn?
During the 2003-06 boom, the three agencies that supervise most U.S. banks — the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency — gave out at least $19 million in bonuses, records show.
Oh. What does that come out to per employee? Like $350?
Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 percent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.
OK. So, these bonuses went to the examiners who’s banks failed, when the signs were obvious at the time, right?
Because most bank inspection records are not public and the government blacked out many of the employee names before releasing the bonus data, it’s impossible to determine how many auditors got bonuses despite working on major banks that failed.
…”In retrospect, a stronger supervisory response at earlier examinations may have been prudent,” FDIC’s inspector general concluded.
In retrospect. I see. This is my favorite part:
In government, as on Wall Street, bonuses are part of the culture. Federal employees can get extra pay for innovative ideas, recruiting new talent or performing exceptional work. Candidates being considered for hard-to-fill jobs may be offered student loan reimbursement or cash bonuses to get them in the door and keep them from leaving.
Ah, yes, the Bonus Culture. This is exactly like a trader at Goldman making a little extra–like $5 million–for getting a few extra trades per month done.
Do you get the feeling that the press runs after anything called a “bonus,” the way dogs run after tailpipes?
Posted by Marc Hodak on March 17, 2010 under Practical definitions |
What the AP reporter must have done with this story:
An AP review of unverified driver complaints found 105 such reports since Feb. 15. That’s a 75 percent increase from the 60 reported earlier this month by the National Highway Traffic Safety Administration. [Emphasis mine]
Comparing two fifteen day periods. With Congressional hearings in between. They aren’t even trying anymore.
Posted by Marc Hodak on March 16, 2010 under History |
California politicians and the UAW are loudly berating Toyota for its decision to close their NUMMI plant in Fremont, California. Most of the media is piling on, with the liberal commentariat pronouncing “treachery” and “ingratitude” for all that California customer’s and workers have given to Toyota over the years, as if there were something other than a commercial exchange between them. The simple reality is that Toyota is making a business decision. It’s Fremont plant is not making money anymore, especially after GM pulled out of its part of it. The commentariat insists it’s never that simple, and is spinning all manner of anti-business narratives out of this decision.
Ok, let’s go with “it’s not that simple.” Only, my narrative won’t assume that Toyota is just there paying workers and suppliers and tax authorities, as if the plant’s existence were a given. My narrative will begin at the beginning, before Toyota moved into Fremont.
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Posted by Marc Hodak on under Executive compensation, Reporting on pay |
UBS is once again paying competitive levels of compensation to try to stanch its exodus of talent, and replace it with similar talent. Their top-earner last year, pulling down $12 million, was their co-head of investment banking Carsten Kengeter. UBS lured him from Goldman Sachs in 2008, and his division narrowed its losses in 2009 by about $25 billion, and is now on a path to profitability. One might think it not unreasonable that his bosses could judge that he made a $12 million difference. But the people who are paid to carp at other people’s pay had another view:
“It’s strange that only more than a year after UBS’s biggest crisis, the bank is once again paying huge bonuses in an area that caused the most trouble,” said Roby Tschopp, director of Swiss activist group Actares. “It shows that under Chairman [Kaspar] Villiger, the bank has lost its sense to act in the interest of the people.”
The latter comment lays bare the difference in mission. UBS’s top management, assumed by the press and critics to be looking for ways to pad the pockets of management, is acting remarkably as if it cares about the bank and its shareholders. The “Swiss activist” organization that is advising shareholders wants the bank to act “in the interests of the people,” as if those interest are somehow served by a bank that suffers for lack of competitiveness.
As usual, the press ignores or glosses over this difference between the managers and the critics. It swallows whole the activist’s premise that the board and managers are working against the shareholders’ interests, and that those interests would be much better served if their managers were paid what the activists think they should be paid or, better yet, if their pay were put up to a popular vote.
Posted by Marc Hodak on March 6, 2010 under Governance, Politics |
The main reason that the USPS will never make any money is that it can’t get rid of its infrastructure. It must have a post office in every district and letter carriers visiting every house six (soon to be five?) days a week. They can’t get rid of their post offices because Congress pays the bills, and no congressman is willing to let their post office get shut down. They won’t give up universal delivery because their unions, who help elect those congressmen, don’t want to give up those jobs with, say, requiring rural people to come into town to pick up their mail, like they do their groceries and sundries.
I know there are all sorts of other arguments out there about why we need a postal service in the age of the internet, with UPS, FedEx and a whole industry of couriers and delivery services, etc., but they’re all irrelevant against the political considerations. With congressional support, the USPS exists in its present form. Without congressional support, it doesn’t.
Now that Congress has similar control over Government Motors, are we seeing the same political pressure take hold in that firm?
GM would not offer any details on Friday about which dealerships it was reinstating and where they are located. It said it chose the 661 based on a variety of criteria, including sales and other business factors.
For you, my loyal readers, I have obtained the criteria and their weighting from an unimpeachable source. Here they are:
1) Is the dealership in the district of a congressman or woman on a key house committee? (40%)
2) Is the dealer’s owner a major contributor to the political campaign of a key congressman or woman? (30%)
3) Will our losses from keeping this dealership open be less than the congressionally imposed costs of arbitration required to shut them down? (25%)
4) Is there anything else about this dealership’s sales or other business factors that we didn’t consider when we originally decided they weren’t worth keeping around that might have gotten us to change our minds? (5%)
What I don’t understand is why the media that reported this are pretending that these factors are being weighted any other way.
Posted by Marc Hodak on March 2, 2010 under Innumeracy, Politics |
The first premise of the story is ludicrous enough: The Obama administration may require every new automobile sold in the United States to incorporate a brake override.
“We’re looking at it,” LaHood told the Senate Commerce Committee. “We think it is a good safety device.”
We? You mean the auto designers and builders in the Department of Transportation, that well-known bastion of quality manufacturing? The agency that, according to Senator Rockefeller “would rather focus on floor mats than microchips because they understand floor mats?” Those guys should be tasked with second-guessing Toyota’s engineers? Please, please, please let me wager against any of them that the net effect of their interference on this will be a net loss of highway safety, with autos all over the nation’s highways suddenly stopping as drivers maneuver to momentarily avoid something with a van riding just a little too close behind them.
Senator Rockefeller, desperately seeking to destroy far more economic value than was created by his illustrious grandfather, began with the conclusion that every legislator draws: “The U.S. government has to do a much better job of keeping the American people safe.”
Yes, the government of a nation that tolerates 35,000 auto deaths per year is gearing up its magnificent machinery to take on a problem that is alleged to have caused all of 5 deaths since 2007, and perhaps 52 deaths since 2000, with even that latter number being mere allegation provided by cowering agents whose funding depends on giving their congressional masters exactly what they want to hear. That way, our legislators can studiously ignore the fact that in the trillions of miles driven per year, the average driver is far less likely to die in a Toyota than in most any vehicle made by the auto companies they directly oversee, makers of the most unsafe vehicles in the land, according to the government’s own crash testing.
And when you thought your “You can’t be serious!” clown nose couldn’t shine any brighter, the second premise of this story–that the government may restrict Japanese-made vehicles–turns it blinding red with this from Nebraska Senator Mike Johanns:
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Posted by Marc Hodak on February 10, 2010 under Executive compensation |
AIG’s CEO Robert Benmosche has implemented a forced-ranking system whereby people get a grade from 1 (you’re a star) to 4 (you suck). Only 10 percent of the people can be stars. 20 percent can get a 2 (you’re good). 50 percent get a 3 (you’ll do), and 20 percent must get a 4 (fail). The amount of variable pay one receives would, of course, depend on their ranking.
Some years back, Benmosche heard that GE did this, liked the sound of it, and implemented it at MetLife when he was the boss there. (GE used to tell their bottom 10 percent that they had to leave the firm. AIG can’t afford that attrition, having just gotten rid of its top 10 percent via a government-approved bonus scheme.)
At MetLife, some staffers there “hated” the system, says Mr. Benmosche.
Well, there are three reasons staffers might hate a forced-ranking system:
– Obvious one: People hate hearing that they aren’t stars, even slackers who are obviously not stars, but have been able to hide behind squishy, Lake Wobegon ratings (everybody is above average). Benmosche doesn’t want slackers to hide anymore. Fair enough.
– Less obvious, unless you’re been there: People hate to give honest feedback to anyone who is not a star. Figuring out which seven of your ten people are going to get less than a 2 is a difficult intellectual exercise. Actually giving those seven people the news can be excruciating, especially for the inevitable borderline cases. Tears are not uncommon.
– Frighteningly subtle: Forced rankings can kill teamwork. You’re basically letting people know that if your cube-mate gets a 1 or a 2, you’re highly unlikely to get rated well. You might as well give people swords and shields and throw them into a cage.
A forced-ranking system can change a corporate culture and “help drive consistency across large organizations,” says Ravin Jesuthasan, leader of the talent-management consulting practice for Towers Watson. [Towers Watson did not implement this system at AIG.]
A powerful incentive to make other people look worse than you can certainly change a corporate culture. People will step on each other to get to the top. Managers within divisions will furiously fight to keep their quiet, but competent people from getting trashed in a political “rank and yank” debate. It can get ugly.
Read more of this article »
Posted by Marc Hodak on February 7, 2010 under Executive compensation, Reporting on pay |
Like many others in the blogosphere, I have said it before and will say it again: Lloyd Blankfein is a mensch. Except that I say it without sarcasm.
I was invited last week onto one of the networks to participate in the TV game “What will Lloyd get!” or “Do you want to tee (up) a millionaire!” I had another speaking engagement that night, which is unfortunate because I had a sure-fire strategy to win this game. I was going to hear what everyone else said, then go $100 below the lowest guess. Folks, I was willing to go down to zero.
My reasoning is that LCB was too. Blankfein doesn’t need the extra $30 or $40 million that he might be entitled to in a pre-2008 universe. He already has more than he knows what to do with, and he doesn’t strike me as someone who really cares about the extra that he wouldn’t know what to do with. People may want to project their image of insatiable greed onto him, but that’s their problem, not his.
Blankfein’s problem is how does he get himself and his firm off the front pages as the poster-child of finance capitalism run amok. If he can navigate Goldman through these rapids without crashing on the rocks of public envy and political hubris, the firm can go back to printing cash for its shareholders, employees and, yes, the tax collector, in peace. And if Goldman can grow its shareholder value, Blankfein makes out even better. Because while everyone else is deer-staring into the bright lights of tens of millions in bonuses, Blankfein is steadily looking at his personal portfolio of GS shares, realizing that with the ups and downs of the market, his personal net worth is fluctuating by an average of $10 million per day. Trust me, with 3.4 million shares already in his portfolio, Blankfein is really not sweating an extra 100,000 restricted shares this particular year versus being allowed to take care of the stock he has without walking around with a bulls-eye on his head.
Posted by Marc Hodak on February 5, 2010 under Innumeracy, Reporting on pay |
It’s fairly well established that most journalists went into their profession precisely because they didn’t get along well with numbers. They deal better with letters. Except when those letters are numbers. This morning’s Wall Street Journal has this at the top:
Punching the Clock on Super Bowl XLIV
The number of man hours an organization devotes to winning the Super Bowl is (M)–that’s one million in Roman numerals. W1 and WSJ.com for updates.
Uh, M is one thousand in Roman numerals. Remember those dates on movie copyrights, etc. with all those Ms?
Someone no doubt beat me to the punch because one of those updates on WSJ.com was to eliminate any mention of M as a million.
The real innumeracy, however, is failing to mention that it takes the same number of hours to lose a Super Bowl, and almost the same amount to not come close to reaching the Super Bowl.
How is this relevant to executive compensation? Because you always hear about “paying for failure,” as if executives haven’t put in the work for a losing effort, as if it’s outrageous they got anything at all for competing and losing. Granted “pay for failure” is often tagged to bonuses or equity grants when a company underperforms or fails, but that ignores the reality that (a) not every individual in a failed organization failed at their particular job, and therefore deserves no bonus, and (b) many of these “bonus” positions are like brush salesmen jobs, i.e., the bonuses are more like commissions, and even a poor brush salesman deserves a commission on what little he sells.
