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Archive for October, 2009

There have been many articles and books written about the cause of the Stock Market Crash of 1929.  As in many manmade disasters it can be difficult to determine THE CAUSE because there are in fact multiple causes which combine to generate the eventual catastrophe. Many so-called experts like to point to one cause or another for an event, when in actuality, the whole thing was due to a complex interrelationship of factors, none of which is the sole cause or the sine qua non.  There is, however, one thing that is certain about the events that led up to the 1929 disaster – the stock market was being manipulated. At the time there was no law against manipulating the market and small groups of very wealthy people did just that.

The wealthy investors would, as a group, begin buying shares of a single stock and then, through their connections in the news media, the average person would be told that such and such stock was rapidly going up and it looked like a sure bet. Before long a lot of small investors would buy the stock and its price would shoot further upward, thus luring even more small investors to buy in. The big boys would sit on the sideline and watch, waiting for their moment.  Then, in one coordinated movement they would sell all their shares at a hefty profit. The stock price would then plummet and the small investor, who fell for the fake news stories about the stock would lose a lot of money, maybe 90% or more.

It was practices like this that caused the Crash and the resulting Great Depression. President Roosevelt created the SEC in order to put an end to these predatory practices.  Law were passed.  Restrictions put in place. These sorts of schemes must never happen again, everyone said.  It is now 80 years since the great stock market crash.  During the intervening years laws have been changed.  The SEC has fallen asleep at the wheel. Men like Bernie Madoff have prospered. One can only wonder, have some of the old schemes been revived?  Have new ones been created? Is the stock market a straight and honest place where stocks are bought and sold without manipulation of any sort?

Consider the past several months behavior of the DOW.  There is a curious behavior in the prices of this average. Notice how the DOW tends to increase rather gradually and then periodically drops precipitously.  It’s sort of a sawtooth effect. One would expect that if very large groups of investors were buying and selling throughout the day that periodic, abrupt changes in stock prices wouldn’t happen. It seems highly unlikely that everyone would decide to sell at the same time. If they did, wouldn’t they also decide to buy that way?

Today the stock market has taken a steep drop.  Yesterday it took a steep rise. The pundits at the various news media all claim to have an explanation as to why the rise and drop occur.  The Wall Street Journal quoted one doomsayer who claims that we are headed for a disaster in commercial real estate.  Yet, only a few days ago we were exuberantly buying stock and congratulating ourselves that we have finally broken the 10,000 mark. We just heard that the economy has returned to positive economic growth.  Despite this wonderful news, CNN posts an article questioning whether things are getting better. Better? Isn’t 10,000 better than 6,500?

While the media are currently broadcasting a message of fear – which can only drive people to sell off their stocks – Nouriel Roubini, the economist who correctly predicted the world economic meltdown doesn’t seem too afraid. He is no longer talking about a W-shaped recovery and seems to have accepted a V-shaped recovery.  Mr. Roubini, seems more concerned about the Carry Trade, trading in currency, and its effect on the dollar’s value than anything else. He says we are now in the Mother of All Carry Trades.  Even so, the Fed has control of this through interest rates. Dr. Doom is no longer forecasting imminent doom for the world.  However, as before the great meltdown, his views don’t get much publicity. He says that the government’s intervention in the economy has led to a recovery. Yet, for many people there is skittishness and resulting volatility in the market – a perfect environment for predators to take advantage of the little investors who will jump to buy at news that a certain stock will rise and who will equally bail out immediately with the slightest hint that a particular stock might drop.

Listen to the so-called analysts who profess to know the cause of the stock market either rising or falling.  How often are they actually correct? There are many times when their reasons contradict their story from just yesterday.  One can only wonder whether there is more to this than meets the eye. The behavior of stocks, the pattern of steady rise and precipitous drops, both during a single day and over multiple days, might well indicate manipulation by large investors. Of course, it might not.  After all, sometimes you can flip a coin and it actually will come up heads ten times in a row.

But you have to wonder.

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A few days ago, President Obama gave a speech at MIT during which he reiterated the need to switch to green energy in order to preserve the environment.  He also said that the use of fossil fuels, particularly foreign oil, places the country in a precarious situation. If a foreign country cuts off our oil supply it could cause great hardship in the U.S.  He also said that a massive effort to create a green energy industry will be a significant stimulus for our economy. Speaking about the worldwide competition to create new sources of green energy he said, “The nation that wins this competition will be the nation that leads the global economy.”  I’m not so sure of that.

As usual, isolationist Americans tend to be unaware of advances made in the rest of the world.  Ever since we won World War II we have had a tendency to view ourselves as the world leader in anything technological. It might then come as a surprise to many Americans that the call to action for the creation of green energy has been heard a long time ago in Europe – while Americans were happy to drive their gas guzzling SUVs and Hummers and heat their homes with fossil fuels and generate electricity with coal.  While Americans were comfortably cocooned in their homes watching football on their widescreen TVs, Denmark was busy building gigantic windmills for the generation of electricity. Today, Denmark is the world leader in wind-produced electricity, a result of a National plan developed in 1976.  They make some mighty large and mighty efficient windmills in Denmark. It’s not clear to me that even MIT can overtake the Danes anytime soon in this type of technology.  Do we really think we will be producing next generation windmills anytime soon and be selling them to the world?  The world already has significant wind generation capability.

What about solar power?  Surely the world needs that. True, but the world has been working on that for quite a long time – while we were driving our SUVs around town trying to find houses we could flip.  Germany is the world leader in solar technology and has been for quite a while. The Germans are currently building a 40 megawatt solar power plant for their own power generation needs. I doubt that the Germans will be one of our customers for solar power technology. Germany is the world leader in producing solar power.

OK, so what else is there? Nuclear? Whoa, hold yer horses, fella. What do you mean “nucular”?  That’s dangerous. Don’t you know they make bombs out of that stuff?  We Americans don’t want that! (Just disregard our stockpile of thousands of nuclear bombs.) Meanwhile, the French – actually not “meanwhile”, ever since the Arab Oil Embargo in 1973  the French decided that they would never again be held hostage to foreign oil.  So they built a bunch of nuclear power plants all over France.  France is the world leader in nuclear power plant technology, not the U.S. I don’t think they’ll be lining up to place any orders from the U.S. even if we do decide to resume nuclear power research.  The leading institution in the world for the future of nuclear energy, i.e. nuclear fusion, is called ITER. It’s in France.  Under the Bush administration the U.S. had all but dropped out of this research effort. Our country stopped paying its dues and had almost zeroed out all funding. Meanwhile the other six members of ITER: China, European Union, India, Japan, Korea, and Russia have made great strides toward the production of power from controlled nuclear fusion – a process that produces very little radioactive waste. Recently the U.S. chipped in a little money that helped to make back payments that the Bush administration failed to make. Even so, we are hardly on the cutting edge of nuclear science compared to the rest of the civilized world.

The fact that President Obama wants to spend a lot of money on energy projects in America is good news. It’s about time. But let’s not kid ourselves. The rest of the world is way ahead of us.  The Obama plan will undoubtedly create more jobs in the U.S.  for people who will be engaged in energy research. It is something we need to do.  It is also something the rest of the world realized they needed a long time ago.  It is unlikely that we will find a large foreign market for our energy technology, whether it is solar, wind, nuclear, or anything else in the near future.  We have too much catching up to do. Because of that, it is unlikely that launching a massive energy research and development project can be the near term solution for our economy. We won’t be exporting windmills to the Danes, solar panels to the Germans, or coals to Newcastle. They have enough, thank you.

The fundamental problem with our economy is not that we don’t do energy reserach, it is the outsourcing of people’s jobs by multinational companies.  We simply cannot go on having our multinational companies make everything in China and then sell it to us in Wal-Mart stores while we get the money to pay for all this stuff by playing economic bubble games and getting home equity loans.  Green energy research is good. It’s good for the scientists and engineers who need jobs. It’s good for the environment. But let’s not kid ourselves, it’s not going to be the solution for the much deeper problems of our pathetic economy.  The solution will only come by tackling head on the iniquities of multinational economics and the exportation of American jobs and manufacturing capabilities to foreign countries.

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As the health care reform legislation wends its way through Congress, it appears that some sort of Public Option may be included in the bill.  The latest talk is that it will only be available to those who have no health insurance. If you already have health insurance through your employer you won’t be able to get it.  It also seems that individual states will be able to opt out of the program, thus denying residents of those state the opportunity to purchase the Public Option.  Meanwhile it appears that the vast majority of the American public are in favor of the Public Option – an option that most of them won’t be able to exercise.

Is there a message here? You bet there is. The American people are fed up with private health insurance.  It costs too much and provides too little.  The American people have seen the excellent quality of health care in Canada and much of Europe- all provided by national health care systems and most of the people seem to be saying that they would rather have something like that. The primary opposition to some sort of national health care comes from the hard core Republicans who are held in thrall to the insurance companies and the banks of America.  The thing to remember is that while the Republicans are a very loud voice they are at the same time a very small voice. Only 20% of Americans now consider themselves to be Republicans. That is a pretty small minority and it shouldn’t have the power to dictate national priorities. Actually the previous election that booted them out of office sort of says the same thing.

So, is there a solution for this upside down manner of thinking? Is there some sort of compromise that can worked out with the party of the politically flirtatious Olympia Snow that would make the majority of Americans happy and yet satisfy the cravings of Republicans to pay a lot of money for very little insurance? You betcha!

The solution is really remarkably simple. Create a national health care system and use Canada or another country that has a very successful national health care system as a model.  We don’t have to just make it an expanded version of Medicare. Make the national health care system such that it covers everyone by default.  You don’t have to be employed or live in a certain state or have no preexisting conditions. If you are alive, you are covered. However, knowing the extreme disappointment the Republicans are sure to feel about being covered by the government, we should provide them with the option of buying expensive insurance that doesn’t necessarily cover all possible ailments and might be revoked at any time for any reason. We will call that the Private Option.

If you ask me that is a compromise worthy of Solomon himself.  Everybody will be happy, everybody will get their way and we will all be healthier in the process.  I would bet even Sarah Palin and Rush Limbaugh would go for it.  I mean they would run right out and buy the Private Option. Right? Wouldn’t they?

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In many of America’s large cities there are tall skyscrapers, and if you look at who owns the tallest of the skyscrapers you will often find that they are owned either by a major bank or a major insurance company.  If you care to think about that for a few moments I’m pretty sure you’ll see that there is the message there.  You can get the same message by noting that the tallest skyscrapers are never owned by shoe manufacturers, food companies, or clothing companies. Some types of businesses just make a lot more profit than others – the top two seem to be banks and insurance companies. Which brings me to the “public option”.

The recent economic catastrophe was essentially caused by the banks in those big, tall skyscrapers making really bad bets, i.e. loaning money for real estate loans that would never be repaid. In the end the solution our representatives in DC came to was for the government, i.e. you and me, to absorb these losses, give the banks a bunch of money and set them back up in their chairs at the financial craps table.  Some have already paid back the loan you and I gave them and some haven’t. So, in a way we sort of own those banks that haven’t repaid the loan we made to them. Of course it is these banks who essentially own our houses because they gave us a loan to buy them and we haven’t paid that off yet. It’s all sort of circular isn’t it? Sort of hard to figure out who ultimately really owns what and who owes what to whom.  The key though seems to be that the banks have to stay in business, so you really do have to pay your mortgage to the bank and you really do have to pay your taxes in order for the government to pay for the loans we made to the banks. The point is this: you have to pay.

So what does this have to do with health insurance? Well, insurance is a lot like banking.  The health insurance company bets that you’ll be healthy and you bet that you won’t.  Both the banking and the insurance industry rely on making good bets. However, the health insurance industry has one great advantage over the banking industry. With insurance you only pay out a bunch of money when something bad happens to the your health – meanwhile you keep paying the insurance company a lot of money. In mortgage banking it’s sort of the opposite.  The bank pays out a big lump sum up front and then collects it back – multiplied by a factor of four or five – over 30 years. The bank is taking a big risk though because you might not pay them back. It would seem that the insurance companies are also taking a big risk too because you might get a catastrophic disease.  So isn’t it all sort of the same? I could be, but it isn’t. The insurance companies have learned about a thing called denial of benefits – it’s all in the fine print. Basically, a lot of them don’t pay off when a catastrophe happens.  They manage to find a pre-existing condition or some other excuse to disqualify you.  So, they make out like bandits and build big skyscrapers. But don’t feel too bad for the banks, because they have an out too: if you don’t pay your mortgage they just grab your house and sell it. Then they take their big profits and build big skyscrapers.

So what does this have to do with a Public Option? The Public Option for insurance essentially makes the government an insurance company – which is to say that we, the taxpayers, are insuring ourselves with all the money we put in our tax dollars pot in DC.  The government makes no profit – and why would it? If we are the government then profiting from ourselves would just be like taking money out of one pocket and putting it in another. A government-run insurance option is essentially non-profit insurance for everyone. It is cheap and efficient and people don’t get denied coverage just because they got sick.

So why don’t we have a banking public option? Good idea. It’s because the banking lobby is too strong and they have paid off too many people in our government. The best way to run a bank is to make it government-run and non-profit. At least that is the best way for the taxpayers; however, you probably wouldn’t have so many skyscrapers anymore. We are a long way away from the government running our banking system – for the time being our government would rather just use our money to provide the banks with multi-billion dollar loans. But perhaps after our next economic meltdown (and it will come, don’t worry, all of the factors that caused the past one and the one that caused the Great Depression before it are still in place) maybe, just maybe, the government at that future time will have the courage and insight to suggest a public option for banks.

Meanwhile, it looks like the citizens of America may soon have to choose whether they want to buy expensive insurance from companies that build big skyscrapers with their profits when they don’t pay off on their policies, or will they choose to buy low-cost health insurance backed up by the full faith and credit of the U.S. government?  I have a feeling there is going to be a rush to buy the public option. Meanwhile, the insurance companies might start considering whether they could convert their posh offices into city apartments and rent them out, since they probably won’t be needing all that office space much longer.

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Well, here we are.  The Swine Flu is sweeping over the country like an invisible Tsunami, or maybe like an invisible Katrina.  Several months ago the government – CDC etc  – promised that they were on top of the situation and there would be plenty of flu vaccine available.   “Brownie, you’re doing a heckuva job.” Doesn’t this seem sort of like deja vu all over again? I mean, during Katrina it was – at first anyway – difficult to tell whether the government just didn’t care or if they were just sublimely incompetent.  Now we know.

OK.  Now we have a new government in place. We all knew last spring that the Swine flu was spreading around the world and that it would be coming around here again in the fall. Well, it’s the fall.  Several months ago our government told us that there would be plenty of flu vaccine around, and remember, at the time no one knew whether the H1N1 flu would be morphing into something very deadly, like its cousin the 1918 flu pandemic that killed millions of people worldwide. So, there was a lot of concern and we were assured that there would be a lot of vaccine available.  But there isn’t.

As of today, the H1N1 flu is widespread in just about all the states. Meanwhile there is precious little vaccine available. It appears that the flu might even have peaked in some areas. So, how are things going at the CDC?  It seems they are confused. They thought they were going to have plenty of vaccine – but they don’t. So what happened? Did someone drop the eggs? How can we go from expecting maybe 100 million doses to be available to hoping for 42 million by mid-November? How can we be at the peak of the flu and have only 16 million doses available right now? There are 300 million people in this country.  And if you get a flu shot today, how long does it take before you have built up immunity to the flu? It doesn’t happen overnight.

There are only two conclusions that can be drawn from the H1N1 vaccine debacle – either our government doesn’t care or it is incompetent. There is an amazing similarity between the Katrina catastrophe and this – at least in the way the government has reacted. The primary difference is that the flu is not nearly as deadly as it might have been had it morphed – scant comfort, I suppose, to those whose children have already died from the H1N1.

One would have thought we had learned a lesson from Katrina, but it seems we didn’t – at least the elephantine U.S. government didn’t.  How could they not know there wouldn’t be sufficient supplies of vaccine? Were the manufacturers lying to them? Did anybody actually bother to do a calculation to see how much vaccine would be available on any given day? Have the people who work for the government ever heard of a spreadsheet?  Do they have any idea how to use a computer to project future supply and demand? I don’t think so.

We are simply at the mercy of an incompetent, uncaring assortment of Civil Servants who couldn’t care less if they rescue people from Hurricanes or germs or anything else for that matter. And where is the Presidential anger?  Where is the Presidential outrage at this gross incompetence? Where is my CHANGE? Why isn’t there any foresight, why no vision, why no imagination? Who is responsible for asking, “What if?” What if this had turned out to be a very deadly flu variant, as in 1918? It happened once – it will certainly – CERTAINLY – happen again. Don’t these people get it?

We lucked out this time. There are plenty of embarrassed, red faces in DC, but there should instead be plenty of embarrassed red faces out on the streets of DC.  But that will never happen because when you are a Civil Servant you have a job for life come Hell, High Water, or the Flu.  Nobody takes responsibility or gets blamed for anything – ever.

The problem is this: we have an incompetent government that is unable to protect the people of this country. It was demonstrated in Katrina and it has been demonstrated again with H1N1. Change is needed like never before, but it hasn’t come where it is needed most – inside the halls of government where intelligent, crucial, lifesaving decisions are supposed to be made, but they aren’t.

That is the lesson of the H1N1 vaccine debacle.

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