HERE WE GO AGAIN ... BANKING ON DEATH, III

In my book I wrote about dead peasant insurance. It worked something like this. Companies would take out insurance policies on their employees. Those on the lowest rung of the totem pole would be offered a $10-25,000 insurance policy when they were hired. When they died their family would collect the money.

This is where it gets interesting.

What the companies didn't tell their employees is that when they took out policies the policies actually paid out anywhere from $100-300,000, and some times more. But the family members still only received $10-25,000. The companies could do this because of favorable legislation that gave them tax credits (as a business expense) to purchase the insurance policies.

This means that the American taxpayer you and me actually paid for the insurance policies. But the company collected when the "dead peasant" insurance policy paid off.

Nice, huh?

Anyways, we're now seeing the evolution of another death based financial contract. It turns out that Goldman Sachs and the usual suspects on Wall Street want to peddle insurance contracts to pension "investors."

Sound good so far? Not really. Here's why.

Because people are living longer, each additional year of life expectancy adds as much as 4% to future pension requirements. This cuts into profits. Longevity cuts into the bottom line. However, by providing insurance to pensions and other retirement institutions Goldman Sachs hopes to convince the pension groups that they are dumping the expense of each additional life year onto insurance providers.

But here's the catch.

The "insurance" providers are not categorized as insurance companies. As a result the pension insurance system isn't regulated like regular (car, home, etc.) insurance companies. These insurance providers don't have to have the reserves on hand to pay out if something really goes wrong (you know, like in 2008).

Instead, these market players are considered as part of our unregulated derivative and/or "swap" market. Call it the "death derivative" market. But, at the end of the day, they don't legally need to have the money to pay out claims. To be sure, they can collect premiums, and can suck the financial life out of their customers. But, like the economic zombies they're sure to become when the going gets rough, they're not legally obligated to give anything back.
 

 
So, instead of selling insurance Goldman Sachs and other banks are really selling "death derivatives" - which are contracts that derive their value from an underlying asset, and can be bought and sold to others with few if any oversight (similar to an earlier class of "death securities" I wrote about over a year ago).  

In plain language what this means is that if the insurance providers collecting premiums today go belly up tomorrow because more people suddenly die, many pensions who think they have insurance will find themselves facing a shortfall, big time.

Goldman Sachs, and their band of snake oil salesmen, are saying "Don't worry ... private market players know what they're doing ... and besides, insurance companies don't go bust." Huh?

Incredibly, these guys have already forgotten and moved past Lehman Bros. and A.I.G. And why not? They got their money.

We should know better. The motive here isn't insurance. It's revenue. These guys need to be regulated. But they won't be.

It's de javu all over again.

- Mark

BANANA REPUBLIC HERE WE COME ...

While the previous post outlines the lunacy behind the Republican's "pledge" to relive the Bush economic years, this post draws your attention to Paul Krugman, who does an effective job of walking us through the GOP's policy proposals here. In a few words, he makes it clear that after 30 years of wishful thinking (that tax cuts will pay for themselves) the Republicans are't even trying to make economic sense now:

... Ronald Reagan’s claim that cutting taxes would actually increase revenue was wishful thinking, but at least he had some kind of theory behind his proposals. When former President George W. Bush campaigned for big tax cuts in 2000, he claimed that these cuts were affordable given (unrealistic) projections of future budget surpluses. Now, however, Republicans aren’t even pretending that their numbers add up.

Thirty years of tax cuts for the rich, deregulation, and corporate bailouts have done little more than add $12 trillion to our national debt, subsidize corporate profits, and produce what may be the largest transfer of wealth in human history. The nation's richest have gotten even richer ...

... while the rest of America has seen it's wealth and economic security collapse (things aren't much different in other parts of the world either).

The Republican's Pledge for America says, "I'll see your record debt and increased wealth gaps (caused by our policies), and raise you a national bankruptcy."

The fact that a large chunk of the American public doesn't understand this helps explain why our nation is in trouble and, as Paul Krugman put it, has put our nation on the path to becoming a Banana Republic.

- Mark

GOP PLEDGE CONFIRMS THE INSANITY

The definition of insanity is

doing the same thing over and

over and expecting different results.

- Albert Einstein

This Jon Stewart piece is hilarious.

Jon Stewart pokes fun at the Republicans. Specifically, he reminds us how the GOP told the world they were going to do some soul-searching after their policies helped wreck the economy, and brought them electoral defeat in 2008. After almost one and a half years of contemplation, as Jon Stewart points out, their soul searching is finally bearing fruit.

Their Pledge for America is the result and, like their "Young Guns" roll out, is a complete embarrassment.

While "old wine in a new bottle" is an over-used cliche, in the GOP's Pledge case it's quite approriate. It definitely gives life to the Einstein quote noted above.

In all cases, watch the clip. It's to the point, and funny.

- Mark

FOX NEWS DISINFORMATION CONTINUES

This helps explain why Fox News is a joke ...

They take a simple unsubstantiated assumption, and then claim "most economists" think tax cuts for the rich are an effective way for stimulating the economy ... because, you know, they worked out so well for George W. Bush.

In reality, as I've pointed out before, Republicans seem hell bent on supporting the wealth of the Paris Hilton's of America, even if it doesn't make economic sense for the nation.

If Fox News bothered to do a little homework they would have found a January report from the Congressional Budget Office (CBO), which is respected on budgetary matters by both political parties. The CBO studied how various policy measures would affect growth and employment across the nation. They found "that putting money in the hands of lower-income earners by boosting aid to the unemployed or lowering payroll taxes is a significantly more efficient way to stimulate growth."

This is especially the case when "compared to putting more funds in the hands of those already well-off."

In order to understand why, let's consider what happens to the economy when America pursues two distinct policy options in the short term:

TAX CUTS FOR THE MIDDLE CLASS: Every time the federal government cuts taxes for the middle class, or otherwise transfers $1.00 to you and me (or the states), the policy generates between eighty cents to $2.20 worth of economic activity. Merchants benefit, communities benefit, states benefit. Again, $1.00 in tax cuts for the middle class and government transfer payments get us about this much ...






TAX CUTS FOR THE RICH: If the federal government continues to follow the policies of George W. Bush, and maintains tax cuts for the rich, it will generate between ten cents and fifty cents in economic activity. Yeah, that's right. We actually lose economic activity (as the rich pad portfolios and/or bet on derivative products). But the Paris Hilton's of our nation do quite well, as do our bailed out Wall Street bankers. Again, for every $1.00 in tax cuts we grant to our Wall Street buddies and the Paris Hilton's of our nation we get this ...




In a few words, in the current environment we're flushing our money down a rat hole by cutting taxes for the rich. Worse, we're generating more budget deficits. How do we know this? Because the CBO has been crunching the numbers and this is what they've told us we get in return for every dollar spent ...




It's really pretty simple. President Obama and the Democrats want to transfer money by maintaining tax cuts for ordinary Americans hit hard by Wall Street's stupidity and greed. The big payoff is that it will generate more bang for the buck. The Republicans, however, are holding out for more tax cuts for the rich because, as Sen. Mitch McConnell (R-KY) argued on the Senate floor, the rich have been hit the hardest by this recession (seriously, check out the video).

Ignored by McConnell is how the GOP's failed "tax cuts for the rich" ideology has consistently given us more debt, which you and I have to pay for.

But let's not let the facts get in the way of Fox News' disinformation party ... and a group of people who want nothing more than to see President Obama fail.

- Mark

REPUBLICANS DOUBLING DOWN ON THE STUPID

Incredible. Senator John Kyl (R-AZ) asserts that we can afford George W. Bush's tax cuts for the rich, which will cost at least $1.3 trillion from 2012 through 2021. But we can't afford unemployment insurance that will cost $33 billion because it's too expensive. Proving that stupidity likes company, we got this from Oklahama Sen. Tom Coburn yesterday. He apparently agrees with the Senator from Fantasia ...  



Suggesting that tax cuts don't cost anything, after almost 30 years of evidence that tell us otherwise, is the essence of crazy stupid. Indeed, new data shows that legislation under President Bush not only increased the deficit by $539 billion in 2005 but that - as Ezra Klein points out - in the absence of Bush era policies, our nation would be running a surplus this year.

Let me repeat that. In the absence of Bush era policies, our nation would be running a surplus this year. 

How do we know this? Because instead of blindly staring at some mystical crystal ball that's clouded in a failed ideology ...

... some people actually look at the numbers. What happens when we do this? We find that if we continue the Bush era tax cuts for the rich they might not cost us just $1.3 trillion by 2021, as noted above. Instead they're more likely to cost us $3.28 trillion by 2018. Nice.

The Republican response to all of this? They stare harder at the crystal ball and say in their best, spooky, Vincent Price voice, "Don't tax the rich. Our failed ideology of tax cuts for the rich - followed by budget surpluses - has been blessed with our new super secret magic potion ... all you need to do is just need to give us another chance. The elixir will work this time ... ha, ha, ha, ha, ha ..." (click on the laugh, it's good).

The causes behind today's budget shortfalls are clear. And it has little to do with President Obama, the Democrats, or any of the other nonsense coming from the political right. Check out the numbers.

Failed wars in Iraq and Afghanistan? Bush's fault. Check ...

Bush era tax cuts? Bush's fault. Check ...

Recovery measures made necessary by Bush's failed policies? Bush. Check ...

TARP, Fannie and Freddie. Bi-partisan stupidity over many years. OK, we'll call it a draw ...

Economic downturn? Made possible by reckless deregulation. Accelerated under Bush. Check.


In a few words, because of the Bush train wreck our nation has been sunk into an economic and financial hole that ... and this is the incredible part ... republicans and conservatives want to blame on President Obama. Worse, they want to do it all over again by continuing President Bush's tax cuts for the rich.

This is not just insane. This is the essence of doubling down on the stupid, Republican style.

- Mark

THIS IS WHY REPUBLICANS ARE CRAZY STUPID ...

“The definition of insanity is doing the
same thing over and over again and
expecting different results.”

 

- ALBERT EINSTEIN

 

 

 

Want to see logic taken into a back alley and get mugged by a crazy ideology? Check this out.

Senator Kyl (Lunatic-AZ) belongs in a political straight jacket. Seriously.

As I've pointed out over and over again, the Republican ritualistic-like chant that tax cuts for the rich will cure what ails the economy, and create budget surpluses, began in 1980 during Ronald Reagan's run for the presidency. With over 20 years of evidence I say we take a look at the record.

Under Ronald Reagan's tax cuts for the rich program ...

1980 National Debt: $ 930 billion

1988 National Debt: $2.68 Trillion

In 1988 George H.W. Bush said we had to continue Reaganomics …

1989 National Debt: $2.69 Trillion

1992 National Debt: $4.17 Trillion

This means that after 12 years of Reagan-Bush, Republicans had effectively quadrupled our national debt by 1992. Still, in 2000 George W. Bush said we had to cut taxes on the rich, again. What did we get in return?

2000 National Debt: $5.66 Trillion

2008 National Debt: $10.6 Trillion

So, let's recap ... after adding more than $5 Trillion to the national debt, and creating a recession-drenched economy with jihad-like tax cut policies under President Bush (where's the outrage Tea Bag People?), and we get Senator Kyl saying that the country needs to maintain the Bush tax cuts for the rich ...

There's no other way to put this. When it comes to tax policy, Republicans are simply crazy stupid.

- Mark

INEQUALITY AND "GUARD" LABOR

I found this at  Economist's View. Here's the money quote ...

“Prior to about 20 years ago, most economists thought that inequality just greased the wheels of progress. Overwhelmingly now, people who study it empirically think that it’s sand in the wheels.” ... Bowles offers a key reason why this is so. “Inequality breeds conflict, and conflict breeds wasted resources,” he says.

In short, in a very unequal society, the people at the top have to spend a lot of time and energy keeping the lower classes obedient and productive.

Inequality leads to an excess of what Bowles calls “guard labor.” In a 2007 paper on the subject, he and co-author Arjun Jayadev, an assistant professor at the University of Massachusetts, make an astonishing claim: Roughly 1 in 4 Americans is employed to keep fellow citizens in line and protect private wealth from would-be Robin Hoods.

I recommend that you read the entire article.

- Mark

BANKING ON DEATH

We all know that part of what drove our economy into a tailspin in 2008 were the incredibly stupid bets market players made. These bets are called credit default swaps. Essentially they are unregulated insurance contracts written and sold by market players who never intended on paying out if things went wrong (primarily because they didn't have the capital on hand).

What the "insurance writers" were really after were the premiums. When the unregulated insurance writers found out that they couldn't pay out on the bets that went bad (like subprime mortgage securities), all financial hell broke loose.

Well, hang on to your hats. It looks like we're going to do this financial stupidity all over again, but on another level. Only this time the big market players are banking on death. Here's how it works.

Traditionally if you purchase a life insurance policy the expectation is that you will pay premiums. In return you have a life insurance policy that can pay anywhere from $100,000 on into the millions. Your family, or your designee, receives a payment upon your death. If you decide you want to cash out, for whatever reason, you cancel the insurance policy and settle with the insurance company. You get a fraction of what you paid into the policy. Most insurance companies anticipate people cashing out, which helps to keep their costs down (since they don't have the big payout at the end). Pretty simple, huh?

Today, however, Wall Street's investment banks want to purchase your life insurance policy and turn it into a security. Specifically, the idea is to get life insurance policy holders to sell their policies to Wall Street. In return the insured party (you, for example) receive a fraction of what you paid into the policy. The new beneficiary of your death are Wall Street market players.

To be sure, Wall Street market players continue making payments on your insurance policy. But instead of waiting for one person to die, what they do is bundle up hundreds, if not thousands, of insurance contracts. These contracts - and the future payouts - are then sold to market players as securities. So you could conceivably have 10,000 life insurance policies wrapped into one security.

What we end up with is a system that creates what economists call "perverse incentives" because of how they encourage the holders of these securities to cheer on your death. Worse, it provides Wall Street and the market players who buy into these securities a financial incentive to oppose national health care initiatives, to stall the release of new medicines, or to hinder medicinal patent sharing proposals. Anything that might prolong your life is viewed as bad news for this security market.

Death is money.

As economists Marshall Aueback and L. Randall Wray put it, we could see the evolution of a powerful alliance where:

Big Pharma and Big Finance might well try to keep new miracle drugs off the market; or, if these drugs were capable of extending life and thereby reducing profits on the securities, make them prohibitively expensive, thus curbing access.

Aueback and Wray add that it's "fairly easy to see some profitable synergies developing between financial firms marketing bets on death and health insurers opposed to universal, single-payer health care."

By keeping health insurance policies alive the securitization of death could bankrupt the insurance industry. Keep in mind that insurance companies have traditionally banked on policy holders canceling their policies long before they pass on. Keeping policies alive for Wall Street undermines this approach.

Or, Wall Street could do an end run around the insurance industry - as they did with credit default swaps - and create securities with the sole purpose of purchasing insurance policies. Another unregulated market, with a focus on encouraging death. Great.

Apart from the financial issues involved, there are also the ethical ones (which I discussed with reference to Dead Peasant Insurance in my book). Should we allow market players to literally bank on death in a way that might encourage them to oppose the release of medicines and public policies that make our lives healthier?

In my view, markets should neither encourage nor cheer on death. Like Dead Peasant Insurance, banking on death through the creation of death securities is not an industry that needs to be encouraged.

- Mark

Post Script: Here's a video with some interestings numbers on death.

MSNBC's DYLAN RATIGAN ON OBAMA'S EXECUTIVE COMPENSATION "PLAN"

MSNBC's Dylan Ratigan minces no words when it comes to understanding how ineffective and toothless the Obama administration's executive compensation plan (for failed institutions) is going to be ...

Visit msnbc.com for Breaking News, World News, and News about the Economy

Seriously, the executives who drove our economy into the ground and then asked for trillions of dollars in taxpayer funded bailout money are going to "voluntarily" adjust their income and bonuses down?

Hey, I have an idea ...

I need a new car. I think I'll go get drunk and drive my car off a cliff. Then I'll say that I was only trying to get home. I'm sure the police department, the fire department, and the insurance company will say, "Oh, that's OK. Your intentions were good. Good thing we rescued you. Go ahead, try it again in this newer (and faster) car that your insurance company bought for you. Drinks are on us ... Oh, and it doesn't matter that you didn't pay insurance premiums. We'll charge your neighbor instead because he's too lazy and stupid to understand the statements anyways."

Voluntarily curb their bonuses? This is insane.

- Mark

TRICKLE DOWN REDUX?

A while back I wrote that the economy wouldn't recover very quickly because the American consumer is simply "tapped out." The point I made is that Americans simply are carrying too much debt, while wages for the average family have virtually stagnated over the past 10 years.

With unemployment hovering around 9.5% and an economy on tax-payer funded (i.e. borrowed) life support, the recovery that we're seeing may be little more than debt-funded Potemkin Village. Making matters worse is that the trillions of borrowed dollars rolling their way through the economy is being gobbled up and hoarded by the financial institutions that got us into this mess. In a few words, we're living on borrowed time, hoping and praying that the financial elites who got us into this mess will be able fix things on their own - if we simply give them more money.

Where have I heard this before .... Oh, yeah, it was 1980.

If you recall, back then Ronald Reagan told us that if we just put enough money into the hands of those with wealth that eventually they would do the right thing - because market players are rational - and the economy would soar. His plan? Give more tax cuts to the rich, and get government out of their way.


Our federal deficit almost tripled under Ronald Reagan, while his deregulation policies are primarily to blame for the deregulatory-induced mess we are now confronting. So much for market players acting rationally. If only someone would write a book about the myth of free markets ... Oh, yeah, I already did ;-)

Anyways ...

In this article that discusses the potential for economic recovery ("The Rise and Fall of Artificial Wealth"), authors Michael D. Intriligator and R. Kyle Martin make it clear that not only are consumers tapped out, but that it will be a long time before a real recovery is on the horizon. Using an array of graphs and sound analysis, Intriligator and Martin tell us that President Obama - following in the Bush-Paulson footsteps - is simply putting money in the wrong hands. Here's what they have to say:

The problem with President Obama's approach to date is that he has been trying to fix the economic problems with a top-down approach. Obama has essentially continued the Bush - Paulson TARP approach, bailing out huge banks, insurance companies, brokerage houses and some major corporations. This approach is similar to President Reagan's "trickle down" economics that didn't work then and that is not working today.

If you want to understand why Reaganomics, or "trickle down," didn't work you can read my previous posts (like this one). If you want to see what trillions in taxpayer-funded bailouts is bringing us, check out these bank failure numbers. The point is - as Intriligator and Martin point out - we need to get more money into the hands of those who will spend it.

You may not agree with how Intriligator and Martin want to go about doing this (the focus is on homeowners and investors) but you have to consider their primary point: We're in the eye of the storm, and the only ones who have been given sound vessels to weather the storm are those who pushed the rest of us into the water.

- Mark

SHOULD WE LAUGH, OR CRY?

Here are two posts from Dailykos that help to explain why the right wing of the Republican party should not be surprised that they are either laughed at or ostracized by mainstream America.

In this post, we see that a group of professional scientists from around the world took time out of their conference to visit America's Ignorance Museum, which is located in Kentucky (while it's officially called the Creation Museum, it's really a tribute to ignorance). The people who run this museum should be embarrassed. But they're not. Here's why.

They have a bastard political step-brother that seems to be getting stronger. It is now rearing it's ugly head in the form of racially tinged intolerance from the "birthers" and others who think and find humor in items like this.






Rather than deal with the issues, more and more people from the far right are finding comfort in petty ridicule and the willful ignorance of the facts (like the broken country that President Obama inherited).

That this mind-set is a product of stereotypes dragged from one of America's ugliest periods of racial intolerance seems to be unimportant to many in the Republican party at this time. As long as they believe they are scoring political points party leaders are willing to let the far right push this mind-set as part of a larger political strategy to discredit the Obama administration.

Like the Village Idiots of yesteryear, we could mock or laugh at these people. But we can't. They have too much political cover at this point. And that's the saddest part of all.

- Mark

McCAIN'S CLUELESS ON THE 21st CENTURY

How many times can John McCain misspeak before the nation's media starts questioning his competency and judgment? Check out McCain's latest claim that "In the 21st century nations don't invade other nations."

Speaking of judgment, here's McCain's record, in graphic form.



- Mark

RETURN OF THE "KNOW NOTHINGS"

In today's NY Times Paul Krugman has an interesting take on the G.O.P.'s evolving campaign politics.

In short, we're back to the days of the "Know Nothings." Only this time, instead of the 1850s fear that Irish Catholic immigrants might overwhelm American values, and then claim to "know nothing" about their movement, today's Know Nothings take pride in providing simplistic and ill-thought out approaches to modern problems (you know, kind of like the Know Nothings of the 1850s). Krugman writes:

Now, I don’t mean that G.O.P. politicians are, on average, any dumber than their Democratic counterparts ... What I mean, instead, is that know-nothingism — the insistence that there are simple, brute-force, instant-gratification answers to every problem, and that there’s something effeminate and weak about anyone who suggests otherwise — has become the core of Republican policy and political strategy. The party’s de facto slogan has become: “Real men don’t think things through.”

On the positive side at least Know-Nothingism has evolved. Today there is pride in providing simpleton solutions to complex problems ... We don't like you? Let's go to war ... I'm afraid of terrorist monsters! Let's strip the Constitution ... I don't understand your energy policy references? Have a gas gauge.

This explains John McCain's "drill here, drill now" mantra. By pressing to drill for oil here and now, when every expert in the field says doing so will do nothing to solve our energy problems (and may even make it worse by providing a false sense of hope), McCain is demonstrating that he has not moved far from the foolish solutions provided by the Know Nothings of yore.

No wonder many of the Know Nothings of the 1850s gravitated to the Republican Party by the 1860s. Their narrow nativism and religious hostility fit right in with the party that freely embraces fear-mongering and banality as campaign cornerstones.

- Mark

P.S. FYI, here's a copy of political propoganda from the Know Nothing period. Click on the piece if the letters are too small to read.

ARE THEY INSANE?

ALBERT EINSTEIN:
“The definition of insanity is doing the same thing over and over again and expecting different results.”

Let’s recap.

In 1980 Ronal Reagan said if we cut taxes on the rich we would have more money to pay down the national debt. And "Reaganomics" was born.

1980 National Debt: $ 909 billion
1988 National Debt: $2.601 Trillion

In 1988 George H.W. Bush said we had to continue Reaganomics …

1989 National Debt: $2.687 Trillion
1992 National Debt: $4.001 Trillion

In 2000 George W. Bush said we had to cut taxes on the rich …

2000 National Debt: $5.628 Trillion
01-08 National Debt: $9.130 Trillion

After adding $3.5 trillion to the national debt, and creating a recession-primed economy with his jihad-like tax cut policies, George W. Bush is saying we need still more tax cuts ... you know, to ‘stimulate the economy.’

I think the only thing left to be asked is, At what point do you think Nurse Ratched will show up at the Republican Fun House?

- Mark