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On Healthcare: What We Can Learn From The Music Industry

Posted by Charles Chen

Nathan Alderman has an interesting write up on the effect of a public option on the healthcare industry:

A decade ago, the major record labels were fat and happy, making piles of cash off CD sales. They could use their massive marketing muscle to push manufactured bands onto the airwaves and into listeners' ears. If you had to buy a whole subpar album just to get the few songs you really wanted, well, too bad.

Then Internet file-sharing rolled into town. I'm not arguing that piracy's right, but digitally available tunes did become a real competitor to the established music business. Rather than adapt to consumers' changing tastes by going digital themselves -- which would have meant surrendering their fat margins, and some of their control over what people listened to -- the record labels panicked. They started suing file-sharers, driving their own customers away. In short, the record labels weren't meeting customers' demand; they were trying to dictate what they thought customers should demand, and actively ignoring what the free market really wanted. Does that sound like capitalism to you?

Industry outsider Apple (Nasdaq: AAPL) finally had to almost bully labels into offering digital tunes at a fair (or at least fairer) price. Now Amazon.com (Nasdaq: AMZN) and a host of others compete with Apple's iTunes, a rivalry that has lowered prices, eliminated restrictive copy protection, and generally given consumers better music options. In return, audiophiles bought more music in 2008 than ever before, according to a January USA TODAY article. Most of those sales came in the form of digital downloads and individual tracks.

In my opinion, private health insurers are no less slothful and stubborn than record labels were at the dawn of the digital era. Insurers' defenders say that a rival public option would "destroy their industry." WellPoint (NYSE: WLP) has set up a website to oppose it. But in my opinion, it's more likely that the increased competition would merely reduce their profits, loosen their control, and force them to work harder, smarter, and more efficiently. That may be bad news for health insurers' stockholders, but you can't deny that it's good news for folks who need health insurance.

I tend to agree with this view.  A public option would, like Apple's iTunes, hopefully drive prices down over time and force the private insurance industry to adapt, streamline,  cust costs, and come up with a better product.  This is good for consumers.  The whole debate has been pretty baffling to me given that it's an option. 

Alderman doesn't address two other facets of a public health insurance option that would be good for Capitalism:

1. 
   
   It would allow people to take risks.  No, not like jumping out of airplanes or something, but employment risks.  People would feel more comfortable seeking jobs at startups and small businesses (or starting their own!), which traditionally have a hard time offering competitive healthcare benefits.  Risk is good since it is what spawns invention and innovation; it would give smart people more flexibility in moving around and brining their ideas with them.
   
   
2. 
   
   It gives employees greater freedom (and employers a greater talent pool).  This is kind of related to the first point in that I think this is important to help spread ideas and innovation.  Employees who are dependent on their employer provided healthcare (like people with young kids, a sick spouse, or with a pre-existing condition) are kind of locked into their employers if they are dependent on employer provided healthcare.  Greater freedom to change jobs without worrying about losing health benefits would seem to lead to better wages, greater spread of innovation, and better options for everyone (employee and employers).  How can this be anything but a good thing?

Alderman's basic premise is spot on, in my opinion, that a public option -- if not a full out single payer system -- would help Capitalism and not hurt it.

Obama Says No To The Assault Weapons Ban

Posted by Charles Chen

So can we stop the bitter tears for a bit?  Just a little?

http://www.msnbc.msn.com/id/30232095

U.S. president signals he won't seek reinstatement of assault weapons ban

MEXICO CITY - Acknowledging a Mexican drug war that is "sowing chaos in our communities," President Barack Obama signaled Thursday he will not seek the reinstatement of a U.S. assault weapons ban but instead step up enforcement of existing laws against taking such weapons across the border.
Despite a campaign promise to see the lapsed ban renewed, Obama was bowing to the reality that to do so would be unpopular in politically key U.S. states and among Republicans as well as some conservative Democrats.

CharlieDigital’s Guide to “Teabaggin”

Posted by Charles Chen

This recent phenomenon of "teabaggin" (lol) amongst conservatives has been humorous on many fronts.  But it's gotten me thinking: are there people really this stupid?  I mean, that's a lot of stupid.  Some of the signs I've seen are pretty creative (creatively wrong).  Let's address some of them and see what we come up with.

I find this one quite humorous myself, as it shows: 1) a total lack of perspective and 2) it's amazing how easily you can get someone to protest against their own self interest.  If this protester didn't know, the highest marginal tax bracket under Reagan was 50%. Then clearly, Ronald Reagan meant 50% slavery right?  So 39% slavery should be an improvement.  Aside from that, what in the right mind of Vishnu are these people thinking?  Do they have any clue on what slavery was really like?  I mean, wow, get some perspective.  On the second point, Obama has already enacted a tax cut (look at your paycheck and you should see it) for 95% of Americans.  Who are the poor, unlucky 5% that have been excluded?  I'm pretty sure its not this guy holding the sign; instead, they're folks making well into 6 figure territory.

There is great amusement to be found in this picture as well.  "ZERO TAXES"?  I wonder how this old lady thinks the roads she is sitting next to were built?  How were the side walks built?  Who paid for those signals?  Who paid for that sign?  I shudder at the thought of living in a country with zero taxes.  Why?  Because it would be a shithole for all but the super wealthy.  Education and literacy rates would drop dramatically.  Commerce would slowly wither as roads and infrastructure weathered and fell into disrepair.  The old would flood homeless shelters and emergency rooms.  Crime would increase as there would be no publicly funded police...only privately funded militia (no better than paying protection to the mafia).  Zero taxes?  Why not relocate to Somalia instead.

Taxation is a necessary price to pay for living under the protection of the federal government.  It is a necessary price to pay for the services and infrastructure which service us all and enable commerce.  It funds education and improves the quality of life of all Americans (after all, the more children we educate and transform into productive members of society, the better off we are tomorrow).  Paul Begala gets it right:

Happy Patriots' Day. April 15 is the one day a year when our country asks something of us -- or at least the vast majority of us.

For those who wear a military uniform, those who serve the rest of us as policemen and firefighters and teachers and other public servants, every day is patriots' day. They work hard for our country; many risk their lives -- and some lose their lives.

But for the rest of us, the civilian majority, our government asks very little. Except for April 15. On this day, our government asks that we pay our fair share of taxes to keep our beloved country strong and safe.

He's right: aside from paying my taxes, the government does ask very little of me.  I'm neither forced to serve in our armed forces, forced to do any work on behalf of the government, nor am I oppressed.  In exchange for 20% of my income (my effective federal tax rate this year), I get to live in a relatively stable and safe society with some of the greatest degrees of freedoms of any first world country.

Of course, let's not forget that silly lady on the left either.  Excuse me miss, but you can't have defense without taxes (lol).

This one is great, too.  On the contrary, Obama's whole platform is aimed a middle class gains.  His tax policy, cuts for middle class Americans while reverting to the top marginal tax rate under Clinton (bear in mind, this is still lower than the top marginal tax rate under Reagan), seems like it's designed specifically to help working, white collar, middle class Americans.  So either this guy makes more than $200,000 or he's just stupid.  I think it's the latter.

lol. Where do I begin with this one?  I mean, what does Christianity have anything to do with this at all?  First of all, we're not a Christian nation.  Second of all, I love the guy's shirt: "Stupidity Offsets for Sale".  I think he needs to buy crate loads of them.

lol.  Still on this ACORN thing?

This one is particularly funny as Wall Street is the epitome of unfettered capitalism. Somehow, our government has been hijacked by both capitalists and socialists...AT THE SAME TIME! Amusing.

Oh, and apparently facists, too. (I rather think that this quote applies more to these teabaggin' protestors than it does to the rest of the public.)  Also: quoting Hitler on your t-shirt?  Always classy.

This one is ironic because this person has conveniently forgotten that we had this thing called an "election" on November 4, 2008.  Yeah, you know, this thing where millions of people from all across the country come out and select the people whom they choose to represent their interests.  Oh yeah, that's right, your guy lost...silly me.

But more importantly, this sign is patently ridiculous simply because it ignores the reality of how government works.  As if "THE GOV'NT" is some entity of the elite, assembled with individuals from some higher class seeking to oppress the people.  Well, I've got news for you: "THE GOV'NT" is of the people, by the people, and for the people.

I think what gets me even more are the cries of socialism, communism, and facism.  Do these people even know what these terms mean?  I mean, do they? I think these people need to have a talk with this guy:

Of course, another fun game to play with all of these tea party pictures is "Spot the Minority".  There's just something really weird that I can't put my finger on...almost every picture of these crowds is 100% white.  What's the deal with that?

What's that you say? You have more questions. Well, let's hear them.

Where's MY bailout?

Well, that's simple: you're already getting tax cut from the Obama administration.  Aside from this, check out his mortgage rescue plan.

NEW YORK (CNNMoney.com) -- The Obama administration's loan modification program is finally underway.

The Treasury Department announced Wednesday the first six participants to sign up for President Obama's plan. They include three of the nation's largest banks: JPMorgan Chase (JPM, Fortune 500), which will get up to $3.6 billion in subsidy and incentive payments; Wells Fargo (WFC, Fortune 500), $2.9 billion; and Citigroup (C, Fortune 500), $2 billion. The others are GMAC Mortgage, $633 million; Saxon Mortgage Services, $407 million; and Select Portfolio Servicing, $376 million.

Additional loan servicers will be added to the list over time, a Treasury spokesman said.

Billed as helping up to 9 million borrowers stay in their homes, the two-part plan calls for servicers to reduce monthly payments to no more than 31% of eligible borrowers' pre-tax income or to refinance eligible mortgages even if the homeowner has little or no equity. The government is allocating $75 billion to subsidize part of payment reduction, as well as provide thousands of dollars in incentives for servicers and borrowers to participate.

This is a huge bailout of the American Dream; it aims to keep homeowners (or should I say mortgage payers?) in their homes by modifying mortgages to the realities of the current market and economic environment.  Taking advantage of historically low mortgage rates, I've already refinanced and ended up saving some $400/month.  So there's your bailout.

But the national debt is skyrocketing!  Think of the children!

There are a few points to make here.  First, I must direct your attention to the Treasury Department's helpful website on this topic.  Please browse through every date range on the site.  Notice a pattern?  That's right, every generation since 1791 has left a debt. Every.  Single.  One. 

Of course, one of the fun facts is looking at the national debt between 9/30/2001 and 9/30/2008, roughly President Bush's two terms.  Let's see, it started at 5.8 trillion, and, well, looky here, ended at 10 trillion.  Whoa, I thought, like, Republicans were supposed to be all conservative-like.  Guess that's just a myth!  Let's look at another time period.  How about Reagan's presidency, the period between 9/30/1982 and 9/30/1988.  Let's see, it started at 1.1 trillion and it ended at 2.6 trillion. Will you look at that?  Ronald Reagan more than doubled the national debt. 

But let's move on from the numbers; I'm sure you protested when Bush and Reagan were in charge, too, right? 

There's another point to be made that can't be made with numbers and that's the fact that not all debt is created equally.  There are multiple parts to this.  The first is the interest rate on debt.  It has never been cheaper to create debt than it is right now since intrest rates are so depressed. Secondly, consider this question: is borrowing $40,000 to spend on a sports car the same as spending $40,000  on a graduate degree?  If your jobless sibling came to you tomorrow and asked to borrow $10,000 to buy a new motorcycle, would you react the same way as if he came and borrowed $10,000 to go back to school?

Of course there is a big difference.  One is a depreciating asset from which you are not likely to ever see any returns on and the other, an education, has a great potential to generate a high return on investment.  Likewise, spending on education, healthcare, infrastructure, basic scientific research, and developing energy solutions is an investment that is likely to yield a high return on investment.  It is spending that increases our overall capacity for commerce.  You need an educated population for high paying jobs, you need working roads to facilitate commerce, you need a new energy grid for efficiency (cost savings) and security, you need to fund basic research to drive innovation, you need to fix healthcare because it is one of the biggest factors depressing wages in the US.

If there is something that we should spend our tax dollars on, it's things like these, things that willl someday help generate commerce and thus employment and tax revenues.  And of course, keep in mind, our kids will utilize these same roads and infrastructure decades down the line.  The will go to these new schools.  They will be the beneficiaries of increased grants for scientific research.  It is precisely the next generation that will benefit the most from our investment today.

Stupid Questions

Posted by Charles Chen

This one comes courtesy of Andrew Sorkin of the New York Times:

Do we really have to foot the bill for those bonuses at the American International Group?

Fittingly, he provides a stupid answer as well:

So here is a sobering thought: Maybe we have to swallow hard and pay up, partly for our own good.

Sorkin invokes "the sanctity of contracts":

...the “fundamental value” in question here is the sanctity of contracts

Welcome to the real world, Mr. Sorkin, where millions of Americans across a broad spectrum of socio-economic classes are employed with transient "contracts".  An NFL player can be cut at any time.  A grocery clerk's job can be eliminated without a second thought.  A consultant can be fired in an act of downsizing.  Long time employees can be terminated without severance.

Mr. Sorkin justifies his belief with another point that he pulled out of his ass:

Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

More like they were trying to build a toy rocket and instead, built a bomb.  In this case, I would say they have no fucking idea how to defuse it because they never realized the dangers of what the created; they never really understood the risks to begin with and thus themselves lacked a fundamental understanding of how their own investment vehicles worked.  I'd say these people are the least qualified to handle this because clearly, they're the same idiots who thought that credit default swaps were a good idea in the first place. 

I'm sure many IT consulting companies would love to have contracts with Mr. Sorkin.  Even if their consultants write terrible, buggy, and unstable code, Mr. Sorkin would be convinced that because these guys wrote it, they would also be the most qualified to fix it.  Mr. Sorkin would be the the ideal IT consulting customer.  Send in your cheapest, least qualified labor and have a guaranteed income stream.  Not only that, Mr. Sorkin would be so ensconced with the sanctity of contracts, that he would feel compelled the keep employing the same guys who wrote the buggy code to the very end.

Sorkin then cites Pearl Meyer:

“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says.

Well good.  Isn't this how the free market and capitalism works?  If these guys, who were a part of the one of the greatest failures in free enterprise (dollar wise), can find people willing to pay them to ruin their businesses, then let them go.  I call B.S.; massive steaming piles of it.  The financial sector is shedding jobs at an astounding rate...let them swim and see how many want to jump off the boat.

In actuality, I think Meyer is full of shit.  AIG acquired 21st Century (an auto insurance company) in 2007 and promptly changed the name to aigdirect.  Interestingly, aigdirect.com now redirects you to 21st.com.  I guess that AIG moniker wasn't working out, huh?  You really have to dig around to find any association with AIG on the site.

At the end of the day, I'd like to see if Sorkin and his compadres would be defending the UAW's contracts or how about pension funds which are routinely raided or wiped out in restructuring?

In reality, there are lots of corporations that have figured out that there are loopholes in this bill. ... What those loopholes permit companies to do is make promises to a few sophisticated creditors to lock up all the assets of the business so that if the company ultimately fails, there won't be any sharing of the pain. The sophisticated guys will walk out with everything, and the employees and pensioners will be left with nothing.

The text of the law clearly gives a priority to the banks and the other creditors who protect themselves by contract. They come ahead of all of the employees and all the pensioners. It's been there since 1978; it is in the law today. If Congress wanted to change it, they could change it with the stroke of a pen, but that is what the statute says. ... What has changed over time is how much the banks are seizing in terms of the assets, ... so that by the end of the day, there is less and less and less left over for the employees and for the retirees.

How about you defend "the sanctity" of these contracts first and then we can talk about bonuses?

The comments are the only thing which redeem this otherwise steaming pile of excrement.

This argument would make more sense if the government wasn't forcing automakers to abrogate their contracts with their workers and pensioners. Would the columnist have us believe that those contracts that will be modified or cast away were any less legally binding than those at AIG? Balderdash...it's rewarding poor performance at the expense of the taxpayer.

— agincourt76, Seattle, WA

I don't remember seeing this argument when discussing the breaking of union contracts for the auto bailout. In fact breaking the union contracts was seen as a feature and not a bug.

— JStuddle, Los Ageles, CA

You have disgraced yourself. What have you said that hasn't been said? If anyone wants to hire these guys who ruined the world economy and collapsed their own firms, they are welcome to them. Yeah, they're real rainmakers. And do you think new people can't be hired to unwind the transactions with $165 million dollars?

— Sylvia Ellerson, New York, NY

Nothing in this piece says what it is that makes the bonus beneficiaries so indispensable. Their training? Their brains? They and only they know where the bodies are buried?

In every big company -- but especially in finance -- there are junior personnel just aching for a chance to take over from their superiors. Eventually they do. Why not now?

— donnolo, Monterey, CA

Its really very simple. Without government intervention, AIG would be bankrupt and none of those bonuses would have been paid.

The government breaks contracts in bankruptcy all the time. Of course it does set a precedent for people who loot their companies and the taxpayers. Even if the goovernment bails out the company, they may not get all the loot they expected. I don't know that is such a bad thing.

The truth is, the government ought to be going after many of these employees with criminal fraud charges. Its pretty obvious they sold more credit default swaps than their company could afford to pay off. Those were contracts too.

— Ross Williams, Minnesota

The thesis of this article is we must acquiesce in the millions of dollars of bonuses paid to AIG executives because (1) we must keep the “best and the brightest”and (2) the sanctity of contract must be protected.

The “best and the brightest” bankrupted the largest insurance company in the world. Keep them? They ought be carefully scrutinizer for criminal law violations: their conduct simply does not pass the smell test. Besides, in the financial crisis which AIG is a prime contributor, where are these so called “best and the brightest” going to go? The taxpayers inherited them, but we don’t have to keep them. Remember, AIG has been nationalized. We own it!

The plaintiff cry about honoring contracts rights hollow. Contracts ought to be enforced. That fundamental proposition is undebatable. Why isn’t the same application of the law urged in the case of the United Auto Workers?

These “bonus” given to the recipient of the taxpayers largess ought to be a “pink slip”

— David, Sherman, TX

Congratulations, Andrew Sorkin, you've just asked the Stupid Question of the Day!

Spansion Fires 35% of Workforce; Reinstates Executive Pay

Posted by Charles Chen

An interesting story (with some heated comments) with regards to a recent move by Spansion:

While Spansion Inc. was cutting 35 percent of its workforce, or 3,000 jobs on Monday, the company’s board was restoring full pay to its top executives.

The company had imposed a 10 percent pay cut last Oct. 6 for top executives. But in a securities filing, it said it was returning the executives to full pay as part of an “employee retention program.”

So I guess this is called "taking one for the team"?  Seems more like a cash grab by the executives of a company that's about to go under.

One intrepid (and mildly retarded?) commenter, "Todd Fletcher", writes:

This story is quite biased. Understand that Spansion is in a very tight position right now, and they must remain competitive within their industry. This means not only attracting the very best executives, but retaining them.

Of course, the logical question is what metric are you using to define "the very best executives".  Why are they in a "tight position"?  Could it be because management and these very same executives made some bad decisions?  Perhaps they lacked foresight into the market and the technologies?  Nah, surely, it's the fault of the guys at the bottom, right?  It's always their fault, right?

Some of the better rebuttals include:

Market guy: Todd, I would stop defending these executives at Spansion. They picked the wrong strategy and direction in 2003 and now the NAND Flash Memory guys are killing NOR Flash Memory manufacturers like Spansion. That’s why Spansion is in so much trouble today. Why would you want to reward Executives for steering the boat into an iceberg? Would you invest your money on a sinking ship?

Shamless1: If you want to pay to bring in new talent I say lets pay, however increasing compensation to people who walked you down the garden path is no different then chasing down the guy who just stole your wallet to give him your watch.

OneOfTheConcerned: Having top quality executives means that Spansion can strategically lay people off and reinstate the executive’s pay…all the while ignoring that they owe Travis County overdue taxes. Ah, the ground is quickly approaching those smug noses.

Brett Stroud:  What does this story have to do with retaining top executives? It’s quite clear that the executives they have led them to a position where they have to lay off 35% of their work force. Seems to me like they’re retaining failed executives.

So yeah, let's see how much longer these guys last.  Incidentally, the stock (SPSN) is currently trading at about $.06, a far cry from the $17 dollar range when I sold my shares a few years back.