Saturday, January 29, 2011
After 18 months of inquiry, and interviews with some 700 people, the National Commission on the Causes of the Financial and Economic Crisis (has a nice ring to it, huh?) has released its findings.
In what will come as little surprise to anyone, the Commission concluded that the crisis was avoidable.
In fact, the government's official verdict on the financial crisis is facing criticism because it doesn't really tell us much we didn't already know.
As one might expect, the report found that: regulators didn't do what they were supposed to; there was a lack of transparency; investors behaved unethically; and credit rating agencies failed in their duties and responsibilities.
The findings also blamed the incompetence and recklessness of Wall St. managers, and the proliferation of exotic mortgages.
The report is 550 pages long and contains 6,711 footnotes.
For political reasons, all four Republicans members of the 10-member panel dissented from the report. In fact, the Republicans issued their own separate report, which is just 26 pages long and has only nine footnotes.
The Republicans took exception to the report's ultimate finding, issued right at the outset: "We conclude this financial crisis was avoidable."
It seems that the Republican dissenters are not only on the wrong side of that argument, but on the wrong side of history.
The commission conducted hundreds of hours of interviews, with industry insiders, policymakers, whistle-blowers and regulators. In the end, the blame was widespread and included the Clinton Administration, the GW Bush Administration and the Federal Reserve.
To no surprise, most of the usual suspects were called onto the carpet for — at a minimum — their acquiescence and ineptitude and — at worst — their complicity.
Former Fed Chairman Alan Greenspan and current Chairman Ben Bernanke were both called to task for their failures and negligence. Greenspan, in particular, was faulted for a “pivotal failure to stem the flow of toxic mortgages.”
Additionally, the findings noted the greed and ineptitude of financial institutions. But it also found that government regulators were completely derelict in their duties. The former is to be expected; the later is entirely unacceptable. Failure of this sort is an abomination to our democracy.
According to the report, regulators “lacked the political will” to scrutinize and hold accountable the institutions they were supposed to oversee. That should infuriate every American.
The financial industry spent $2.7 billion on lobbying from 1999 to 2008, while individuals and committees affiliated with it made more than $1 billion in campaign contributions.
Perhaps that had something to do with the lack of political will. Money talks — quite loudly.
Former Treasury Secretary Hank Paulson is faulted for wrongly predicting that that the subprime collapse would be contained.
Current Treasury Secretary Tim Geithner also faced criticism. The New York Fed, which Geithner then headed, was faulted for missing obvious signs of trouble at Lehman Brothers and Citigroup, even though it wasn't their primary regulator.
The Securities and Exchange Commission was blamed for not mandating higher capital requirements from banks, which would have buffered them from potential losses and prevented many risky practices.
For about every $40 the nation’s five largest investment banks had in assets, they had only $1 in capital to cover losses. Consequently, a mere 3 percent drop in asset values could have wiped out these firms. The banks hid their excessive leverage using derivatives, off-balance-sheet entities and other devices, the report found.
That's typically referred to a trickery, chicanery, deception, or just plain old fraudulent accounting.
The Office of Thrift Supervision and the Office of the Comptroller of the Currency were faulted for engaging in "turf wars" instead of curbing abuses. That will hardly sustain whatever is left of anyone's faith in these regulating agencies.
And the Democrats were faulted for their decision in 2000 (Bill Clinton's final year in office) not to regulate derivatives, which was called “a key turning point in the march toward the financial crisis.”
This toxic stew of failures, cronyism, turf wars, negligence and malfeasance created a perfect storm that led to a historic financial meltdown and subsequent recession, the effects of which we are still dealing with and will be for years to come.
We've come to expect the customary greed and recklessness of Wall St. However, we should be able to expect more from our government and we should, in fact, get more.
Many observers will be suspect of some of the commission's more dubious findings. For instance, the report doesn't lay blame on the Fed for the artificially low interest rates it set after the 2001 recession.
However, countless observers have noted the effects that all of that low-cost money flowing into the lending system had in promoting over-investment and mal-investment, particularly in the housing market.
The report also found that Fannie Mae, Freddie Mac and the aggressive homeownership goals set by the government were not major culprits. Those findings also seem highly questionable. It's fairly self-evident that loosening lending standards and repurchasing so many dubious, risky mortgages had to have negative consequences.
Obviously, the system was poised, if not rigged, for ultimate failure. What is entirely clear is that there was an abundance of greed, hubris, incompetence, complicity and carelessness.
No one has been arrested. No one has been charged. No one has been prosecuted. No one has been convicted. Nothing has really changed. Life goes on, much as it was before. And the chances of another collapse are as likely today as they were in 2008.
Wall St. owns Washington; it has bought and paid for it. Wall St. is the master and our government is its willing lapdog. We can't really trust anyone in positions of power or authority. The rule of law doesn't truly exist; at least not for the powerful and the connected.
This summation from the report's authors seems all too kind:
“The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. The captains of finance and the public stewards of our financial system ignored warnings and failed to question, understand and manage evolving risks within a system essential to the well-being of the American public. Theirs was a big miss, not a stumble.”
You could just as easily conclude that government regulation doesn't work because our government is so corrupt and dysfunctional. Laws, rules and regulations don't work — and don't matter — when those charged with enforcing them don't want them to work.
When those in charge of regulation hold the needs and concerns of the regulated in higher regard than those of the general public — and the very nation itself — then regulation is a farce.
And so is the government that protects its Wall St. benefactors and does their bidding.
Wednesday, January 26, 2011
In his State of the Union speech, President Obama made calls for investing in America's future and maintaining our nation's competitive edge in an increasingly global economy.
To that end, the president called for spending increases in education, high-speed rail, clean energy technology, and high speed internet.
Yet, noting the nation's precarious financial state and the need to reduce federal spending, the president simultaneously called for cutting the deficit by $400 billion over the next decade.
However, the deficit has exceeded $1 trillion in each of the last three fiscal years. So, cutting forty percent of the annual deficit over a ten-year period amounts to spit in the bucket.
Simply put, such an initiative is as ineffective as it is disingenuous.
Those opposing goals seem to put the president's agenda into conflict.
Though the president called on Congress to eliminate earmarks, and vowed to veto any bill that contains them, earmarks amount to just 1-2% of federal spending.
In addition, the president also called for an end to subsidies to oil companies, who, Obama noted, "are doing just fine on their own."
According to filings with the Securities and Exchange Commission, the five largest oil companies made a combined profit of $64 billion in 2009.
It's not justifiable for the government to be subsidizing the oil industry at the expense of other industries. And most conservatives would contend that the government shouldn't be in the business of subsidizing any private enterprise — period.
While the president called for modest cuts to spending, he also called for the biggest increase for R&D funding since the Kennedy Administration.
However, the advantage President Kennedy had back then, in pursuit of putting a man on the moon, was the absence of such an enormous debt. At the end of 1960, the national debt was roughly 55% of GDP. Yet, at the end of fiscal 2010, it stood at 93.4%.
Once again, the nation's needs and its budget realities seem to be in direct conflict.
Ultimately, investing in eduction, research & development and infrastructure are all as vital as they are sound. However, the government is not in a position to replace $1 in cuts with $1 in new spending. A two-to-one ratio won't even be adequate. It would likely take $3 in cuts to justify $1 in any new spending.
That's how bad our nation's debt problem is. It won't be long—perhaps later this year—before the national debt eclipses the size of our nation's gross domestic product.
In addition to his proposed five-year partial freeze in domestic spending, the president also said he supports cutting the Pentagon budget by $78 billion over five years. However, the total defense budget (including Homeland Security) is the single largest budget expenditure, at over $700 billion annually.
Affirming a paltry decrease to Pentagon funding—amounting to cutting roughly 10% of annual defense expenditures over a five year period—gets us nowhere. The reality is that the defense budget needs to be cut in half.
Defense and Medicare are the two places where spending needs to be significantly reigned in to make any appreciable difference to our chronic deficits, as well as the nation's long term fiscal health.
It's worth noting that the president didn't call for adopting any of the proposals of the bipartisan deficit commission he himself created.
Eliminating earmarks or funding for the National Endowment for the Arts, public radio, and public television (GOP favorites) are just window dressing. Such proposals amount to nothing more than grandstanding and political gamesmanship.
These are serious times, for serious people, and serious proposals.
Such proposals need to start with significant cuts to the military budget and Medicare spending. Anything else is as marginal as it is futile.
Tuesday, January 18, 2011
Though you could see it coming long ago, a lamentable moment in US history has finally been reached; the national debt has now eclipsed $14 trillion, a truly mind-boggling figure.
To put this in perspective, the total amount of currency in circulation in the US is less than $1 trillion.
For further perspective, the estimated US GDP last year is $14.7 trillion. Given our tepid economic growth, and the rapid pace at which the debt is climbing, it may not be long before the debt eclipses GDP. That would essentially define bankruptcy.
Early last year, Congress preemptively raised the debt limit to $14.3 trillion in an effort to circumvent this hot-button issue in the midst of the mid-term elections.
However, next month, Congress will begin a huge political battle over the nation's finances and there is the potential for a government shutdown, though that possibility may amount to nothing more than political gamesmanship.
Yet, the bond markets may soon become spooked and insist on much higher interest rates to continue their lending to the US. Interest payments alone will soon eat up an inordinate share of the federal budget. According to the Congressional Budget Office, interest payments on the debt could balloon to $800 billion a year, or 3.4 percent of the economy, by 2020.
There is also the distinct possibility that foreign lending could come to a halt if sovereign governments come to doubt the US's ability to repay them.
At present, the government is borrowing 40 cents of every dollar it spends.
One thing that most Americans don't realize is that the US must continually borrow money just to pay off old debts. In other words, current bond buyers are funding the redemptions of previous bond holders.
Due to fiscal mismanagement and an inability to square revenues with expenditures, the national debt has grown precipitously over the past decade.
According to the Treasury Department, the nation's debt stood at $5.8 trillion on September 30, 2001. By the same date in 2008, after the engagement of two wars and two rounds of tax cuts, the debt had grown to $10 trillion. And more than two years into an economic crash and stagnation, the debt has now crested beyond $14 trillion.
There is no let up in sight. The US still has troops on the ground in Iraq and Afghanistan. It's emblematic of the American Empire; the US presently has 500,000 military personnel stationed on over 700 military bases in more than 150 nations.
Last year, the government estimated that the Medicare Hospital Trust Fund would be depleted in 2017, a mere six years from now. The projections for this date with destiny could change for the worse; in 2009, Medicare ran a deficit for the first time.
The timing couldn't be worse. This month, the beginning of an enormous wave of Baby Boomers began turning 65 and applying for Medicare. The Boomers are 78 million strong and account for roughly a quarter of the US population. They will continue applying for Medicare every month for the next 18 years, assuming Medicare lasts that long.
The US government's total unfunded liabilities for Social Security and Medicare are now in excess of $100 trillion (no, that's not a typo), and that number is only growing. Yet, the private net worth of all Americans was estimated at just $53.5 trillion dollars in the second quarter of last year, according to the Federal Reserve.
This means that more money is owed than exists in the US. In other words, those liabilities can never be paid.
The problem may be even worse. Using Congressional Budget Office data, Boston University professor Laurence Kotlikoff created quite a stir last summer when he calculated the fiscal gap of the US at $202 trillion. The fiscal gap is the present value difference between projected future spending and projected future revenues in all future years.
As if that isn't bad enough — all by itself — our problems go well beyond entitlements.
The US imports more than two-thirds of the oil it uses, part of the reason the trade deficit reached $38.3 billion in November. More on that in a moment.
Through the first 11 months of 2010, the trade deficit was running at an annual rate of $500.4 billion, 33.5 percent higher than in 2009 — a year when the deep recession cut into Americans' appetite for imports.
For decades, the US has led the world in imports, sending trillions of dollars overseas. The trade deficit is a significant reason why we are the world's biggest debtor nation.
The US has held a trade deficit since 1976, and there is no reason to expect that this will change any time soon. Unfortunately, the US will remain hampered by the fact that exports account for just 12 percent of GDP. That is not something that can be fixed quickly or easily.
Though manufacturing expanded for the 17th consecutive month in November, it still accounts for just 11 percent of the US economy. That will not help us dig out of the hole we are in, create new jobs, or significantly reduce the trade deficit.
When all of this is added up, the long term prognosis for the US just isn't good. There are numerous factors working against us all at once.
The US economy is overly reliant on foreign oil, importing two-thirds of what it uses. Without oil, there can be no economic growth, something our system is entirely predicated on. The problem boils down to a limited supply and an ever-increasing global demand.
Tom Kloza, chief oil analyst at the Oil Price Information Service, says that for the last six months, or so, worldwide oil demand has exceeded supply.
"Once demand really comes back online full force, refineries in the US will not be able to satisfy both demand for diesel and for gasoline," says Kevin Kerr, editor of Kerr Commodities Watch. "The days of cheap gas and diesel are certainly over."
As if on cue, last week the US Energy Department warned in a report that retail gasoline prices could top $4 per gallon later this year. That would be very bad for the US economy.
“If the US had a sustained period of $4 gasoline prices, a second recession would be a near certainty,” says James Williams, economist at WTRG Economics.
There is a widespread belief amongst analysts that oil will reach $100 per barrel this year. That will adversely affect everything in the US economy, from shipping and transportation, to food production, to manufacturing. Simply put, everything in our society is oil dependent.
Then there's the matter of the dire fiscal position of most states, some of which will certainly request further federal assistance. It's one thing to deny bailout money to banks and other corporations, but can the federal government say no to the states and their own citizens? It all gets very complicated.
One in seven Americans now receive food stamps. That's a great expense to the federal government.
Additionally, the U-6 unemployment number was 16.7 percent in December. This category includes those who are unemployed and actively seeking work, 'discouraged workers' who have given up looking because they believe no work is available for them, and those who can only find part-time work, even though they want full-time employment.
All told, this amounts to one-in-six Americans in the work force.
Though that is certainly a startling number, the U-6 figure is widely viewed as an underestimation by economists.
The jobs problem is so bad, the states have been overwhelmed by the millions of Americans seeking unemployment benefits. As a result, they have turned to the federal government for assistance. But the federal government is also broke.
Because of this, Washington will be sending the states a cumulative bill of $1.3 billion this September. The government is seeking reimbursement from 30 beleaguered states for the money they borrowed to cover the unemployment benefits they couldn't otherwise afford.
However, that amount only covers interest; the states have borrowed a total of $41 billion to manage unemployment payments so far, and the federal government says that total may eventually reach $80 billion.
For some states, it may take years to pay off these loans. The total state debts are the highest in the 75-year history of the unemployment program. And this doesn't even take into account that the nation's unemployment problem isn't expected to improve significantly any time soon.
Where will the states find the money to repay those loans? As the saying goes, you can't get blood from a stone.
The US is in the midst of a perfect storm, in which all of these assorted crises are reaching a critical mass, and they are now feeding on one another, making the eventual outcomes even worse.
The nation is in the midst of simultaneous fiscal and monetary crises. Our financial position is tenuous and our economy on shaky legs.
It is only a matter of time until taxes are raised, entitlements are cut, interest rates spike and inflation (which is a lagging indicator) begins to rise.
Many Americans will be stunned and embittered when they discover they will not receive all the benefits they have been expecting — that they were promised. With the inevitability of future tax hikes, Americans will be asked to give more and receive less.
The US has reached the point of no return. There will be financial and economic chaos, marked by a continually devalued dollar and a shrinking economy. There will be growing poverty, more homelessness, more desperation, and the likelihood of civil unrest at some point.
When the government money stops flowing to those expecting and needing it, the results will be disastrous.
We have crossed the Rubicon.
Saturday, January 15, 2011
As a result, next month, Congress will begin a huge political battle over raising the $14.3 trillion debt limit, set just last year.
The 2010 election was largely about government spending, budget deficits, taxes, and that dangerous debt total, which could be the financial train wreck that ultimately destroys the US.
The problem with the deficit debate is that one person's example of government waste is another person's example of critical government spending.
Politicians and voters alike cling to certain programs and expenditures they see as vital to the nation, their state, or even a community.
However, there are examples of waste that are so outrageous they may make everyone want to stand up and scream.
Like this one, for instance, as reported by MSNBC.com:
WASHINGTON — The Obama administration on Friday ended a high-tech southern border fence plan that cost taxpayers nearly $1 billion but did little to improve security. Congress ordered the high-tech fence in 2006 amid a clamor over the porous border, but the project yielded only 53 miles of protection.
Homeland Security Secretary Janet Napolitano informed key members of Congress Friday that an “independent, quantitative, science-based review made clear” the fence, known as SBInet, “cannot meet its original objective of providing a single, integrated border security technology solution.”
The fence, initiated in 2005, was to be a network of cameras, ground sensors and radars that would be used to spot incursions or problems and decide where to deploy Border Patrol agents. It was supposed to be keeping watch over most of the southern border with Mexico by this year.
Instead, taxpayers ended up with about 53 miles of operational “virtual fence” in Arizona for a cost of at least $15 million a mile, according to testimony in previous congressional hearings.
The Bush administration awarded Boeing [the contractor] a three-year, $67 million contract. But the fence had a long list of glitches and delays. Its radar system had trouble distinguishing between vegetation and people in windy weather, cameras moved too slowly and satellite communications also were slow. Although some of the concept is in use in two sections of Arizona, the security came at too high a cost.
So, based on this, one might expect that not only would the project be scrapped, but that the contractor would be summarily dismissed and even sued to recover the taxpayer money wasted on this utterly failed system. But that kind of rationale would be wrong.
Boeing was the contractor for SBInet. Despite the problems, the Homeland Security Department granted Boeing a second one-year option on a three-year contract to work with the department for maintenance and upkeep of the two Arizona sections that are operational.
In a statement, Boeing said it is proud of the accomplishments of its team and the “unprecedented capabilities” delivered in the last year to assist Border Patrol. The company said it appreciates that Homeland Security Department recognizes the value of the fixed towers Boeing built as part of SBInet.
Got that? Failure is rewarded, and Boeing is proud of its failure.
As a result of Boeing's "unprecedented capabilities", this albatross of a project had to be scrapped due to its abject failure.
This is an egregious example of our government at work, wasting our tax dollars in a time of fiscal crisis. It is the definition of government gone mad. And it defines the cronyism that is endemic in our government.
Entire industries, such as the Military-Industrial Complex, hold sway over our government. The government is the servant and industry is its master.
What's clear is that the bigger government becomes, the more wasteful, the more corrupt and the more entitled it also becomes.
Even as conservatives and Tea Party members in Congress — and across the country — scream about the size, reach and irresponsibility of government, outrages such as this continue unabated.
Like the Titanic, the US is sailing — full-speed ahead — into a fiscal and financial ice berg.
Sadly, this story will fly under the radar of the average, highly distracted American.
Meanwhile, our government continues to rot and our fiscal position continues to decay.
As the saying goes, we get the government we deserve.
Friday, January 14, 2011
When things start melting down and trouble ensues, its a natural human tendency to blame. People seek to shift responsibility from themselves and onto others. Scapegoats make people feel good. It's nice to have a whipping boy, someone or something on which to out take your frustrations.
In the case of the housing meltdown, many people still blame sub-prime borrowers. But so called Alt-A borrowers also defaulted in mass, and even prime borrowers lost jobs and were foreclosed upon. Commercial real estate went bust as well. That certainly wasn't the fault of sub-prime borrowers.
The problems in housing were related to a credit binge, or "irrational exuberance", as Alan Greenspan so famously referred to it. There was far too much cheap money available, and everyone seemed to think that home prices could only escalate — indefinitely.
If people couldn't really afford their mortgage in the long term, the feeling was that their house would continually appreciate, offering them greater equity and a stronger position for refinancing down the road.
There were no money-down loans, negative amortization loans, stated-income loans, interest-only mortgages, adjustable-rate mortgages (ARMs) and options that let buyers choose their payment (including interest only) on loans that would reset within five years.
Option ARMs were still being granted by banks as late as 2007, which means those particular mortgages will continue to have problems through at least 2012. If people are defaulting even now on low-rate teaser mortgages, what happens when those rates reset higher?
Lots more foreclosures, that's what.
But these problems did not suddenly creep up on us, or jump out of nowhere in 2007 and 2008. They were a long time coming, and the FBI knew this as early as 2004.
Back then, the FBI was investigating the mortgage-lending industry and warned that mortgage fraud was "epidemic". And the Bureau gave notice that if these practices — perpetuated by unscrupulous professionals and organized crime groups — were not curtailed, the fallout would be worse than the S&L Crisis, which cost taxpayers $132 billion.
The nations' chief law enforcement officers said they were investigating the dealings of suspect mortgage brokers, appraisers, short-term investors, and loan officers.
The FBI also noted that the number of open investigations had increased more than fivefold in the period from 2001 to 2004, reaching more than 500 by June of that year.
The mortgage industry clearly knew that there was trouble afoot, noting that there had been 12,000 cases of suspicious activity in just the first nine months of 2004 alone.
However, the Bureau had just 250 agents investigating these crimes, compared to the more than l,000 who handled the S&L crisis in the 1980s.
The FBI was utterly overwhelmed, saying, "The thousands of financial fraud investigations now underway are putting a strain on the bureau's ability to fight other crimes. An explosion of mortgage fraud cases has stretched the FBI so thin it's having a hard time investigating other white collar crime."
Ultimately, many of the FBI's corporate crime experts were reassigned to investigate and fight terrorism, leaving the Bureau even more shorthanded.
What this makes clear is that the problems in housing were brewing for quite some time before the eventual and ongoing meltdown, and that the FBI and mortgage industry were all well aware of it.
Clearly, there was fraud. But there was also greed, complacency and a blatant disregard for sound business and lending practices.
The money coming from the Fed was so cheap. It was easy for the banks to make money selling mortgages. And once the Big Banks came up with the idea of bundling and then securitizing millions of mortgages, the risk was sold off to unwitting investors around the world, many of whom got wiped out in the ensuing tsunami brought on by Wall Street's financial crisis.
It's easy to blame sub-prime borrowers, the Community Reinvestment Act, the Republicans, the Democrats, Fannie Mae, Freddie Mac, etcetera, etcetera. But it's obvious that there were many culprits here, not the least of which were the banks themselves.
There is something sweetly ironic about the fact that the fraudsters in the banking industry were themselves being swindled by equally unscrupulous industry insiders and organized crime groups.
If the whole house of cards hadn't fallen down on so many millions of decent and hard-working Americans, you'd call it poetic justice.
But ultimately, the bankers are never left holding the bag. It is always long-since passed along to some unwitting suckers.
Thursday, January 13, 2011
Aside from the housing and state budget crises, the other big story to monitor in 2011 is the fallout from the evolving sovereign debt crisis on the other side of the Atlantic.
Citigroup has warned of a fresh wave of bank failures in Europe. These banks are heavily invested in the bonds of nations that may be unable to pay them back, which puts those banks at risk.
Professor Willem Buiter, Citigroup's chief economist, said the risk of contagion is growing in the eurozone.
"The market is not going to wait until March for the EU authorities to get their act together. We could have several sovereign states and banks going under. They are being far too casual," Buiter said.
That is a chilling prediction and it frames the magnitude of this debt crisis. Any sovereign failures would have massive reverberations around the world. And any large bank failures would be felt across Europe, and even in the US, since the banking systems are so interconnected.
Mark Schofield, Citigroup’s global head of interest rate strategy, said Portugal would need an EU rescue soon and that it was "highly likely that Spain will go the same way."
Moody's said it might downgrade Portugal's A1 rating by one or two notches on growth worries, but said the country’s solvency was “not in question”.
"Restructuring of some sovereign debt is inevitable. There is a chance that Spain could still make it, but the debt trajectory looks unsustainable if a broader EU-wide solution isn't found," Schofield said.
A bailout of Portugal's relatively tiny economy (49th) would be manageable, but would be very damaging to market confidence. And confidence means everything in global markets.
However, Spain has the world's 13th largest economy. If it needs a bailout, such a move would result in significant ripple effects reverberating through world markets. After Greece and Ireland, investors will be left asking, Who's next?
There is only so much money to go around. The bailouts cannot continue indefinitely, and the rich countries of the north cannot continue to carry the weaker nations in the south and on the periphery.
Earlier this year, German Chancellor Angela Merkel declared that this is the biggest financial crisis that Europe has faced in more than a half-century.
"The current crisis facing the euro is the biggest test Europe has faced for decades, even since the Treaty of Rome was signed in 1957," Merkel stated.
Watch this story over the coming months; it has the potential — even likelihood — of being one of the biggest stories of the year.
Wednesday, January 12, 2011
According to Medicare/Medicaid Services annual report, health care costs grew to 17.6% of the US economy in 2009, or more than $1 out of every $6 spent in America. That's a new record, and it's also the greatest share of GDP dedicated to healthcare by any nation in the world.
Despite the fact that GDP declined 1.7% in 2009, health care spending continued to increase anyway.
In 2009, industrialized nations spent an average of 8.9% of GDP for healthcare expenditures, according to the OECD. Yet, in the US, it approached 18%.
This figure is beyond inefficient and is simply unsustainable. All of this spending takes money away from other vital sectors of the economy.
Americans spent $2.5 trillion on health care in 2009—or $8,086 per person—a 4% increase from 2008. That is more money spent per person than any other country in the world, by far.
The 4% growth in 2009 was down from 4.7% in 2008, the second slowest rate of growth in the history of the National Health Expenditure Accounts (NHEA) going back to 1960.
The recession led to slower growth in private health insurance expenditures and out-of-pocket spending by consumers, and to a reduction in capital investments.
However, health spending as a share of the nation's GDP increased by 1.0 percentage point, up from 16.6% in 2008, the largest one-year increase in the history of the NHEA.
One in seven Americans did not have health coverage in 2009, and Texas has the highest percentage of uninsured residents amongst all states (26%).
The one in seven figure is the same as the number of people officially listed as living in poverty in 2009, as well as the number of people receiving food stamps last year. So there is likely overlap here; there may be many of the same people in all three groups.
The good news in the report is that private health insurance premiums grew 1.3 percent in 2009, a deceleration from 3.5 percent growth in 2008 and the slowest rate of growth in the history of the NHEA.
From 1999-2009, health insurance premiums for families rose 131%, while the general rate of inflation increased 28% over the same period.
While Americans widely believe that our health system is the best in the world, the evidence says otherwise.
Life expectancy is an excellent measure of a nation's health. Yet, last year researchers at Columbia University report that the US is now 49th in life expectancy, putting it lower than a dozen other developed nations. We're even lower than many third world nations. And the US has been dropping in life expectancy tables for decades.
Infant mortality is good measure of a nation's health care system. In 2009, the National Center for Health Statistics ranked the US 30th in global infant mortality rates, behind most European countries, Canada, Australia, New Zealand, Hong Kong, Singapore, Japan, and Israel.
And out of 20 “rich countries” measured by UNICEF, the US ranks 19th in “child well-being”.
If it's not bad enough that the US has a failing health care system, it is also an inefficient system that just so happens to be the world's most costly.
Last June, the Commonwealth Fund, which researches and advocates for healthcare reform, reported that Americans spend twice as much on healthcare as residents of other developed countries, but get lower quality and less efficiency.
These problems are not new. They have existed for many years.
In 2000, the World Health Organization ranked the US 37th of 191 countries for "overall health system performance," 72nd for "level of health," and first for "health expenditures per capita."
When it comes to health care, Americans do not get what they pay for.
Ultimately, these costs are yet another albatross hanging on the necks of the US and its citizens. There are no signs that the spiraling costs of health care will slow down, much less regress.
The US is on the threshold of becoming the first-ever mass-geriatric society. For the first time in history, people 85 and older are the fastest growing segment of the population. Over the next 25-30 years, the number of people over the age of 65 will double to more than 70 million, or 20% of the population.
People that age use a disproportionate amount of health care. However, Medicare cannot sustain such a large population of people using such an enormous amount of health care. The system simply cannot sustain such massive expenditures.
The US is the fattest country in history. Fully two-thirds of Americans are overweight or obese. The nation is plagued by lifestyle diseases, such as heart disease, Type II diabetes, high blood pressure and high cholesterol.
Put all of this together and you have an aging, overweight, diseased nation and a health care system unable to cope with all of it.
Sooner than later, the cost of ill health, brought on by poor lifestyle choices, will overwhelm the nation's economy, which cannot sustain such a disproportionate amount of its spending on healthcare.
Tuesday, January 11, 2011
We now have more evidence that many bank foreclosures are fraudulent and often made on homes that banks don't even own.
Last week, the Massachusetts Supreme Judicial Court affirmed a 2009 ruling that invalidated foreclosure proceedings involving two houses in which the lenders did not hold clear titles to the properties.
“We agree with the judge that the plaintiffs . . . failed to make the required showing that they were the holders of the mortgages at the time of foreclosure,’’ Justice Ralph Gants wrote in the decision.
This ruling is a major development and it will likely have national implications. Case law is all about precedent, and that precedent has now been set.
In Massachusetts — at least — lenders will now have to prove they own mortgages before beginning foreclosure proceedings.
Imagine that. A reasonable person would have suspected that this was mandatory all along.
The ruling puts in question the ownership of hundreds, possibly thousands, of foreclosed properties in Massachusetts. Lawyers say previously foreclosed homes will revert back to the homeowners who lost them, at least temporarily.
If banks cannot show clear title, and that the foreclosure process was done according to the law, it means that a property was improperly taken. In those cases, banks would have to return homes to former owners.
The already clogged foreclosure pipeline could be overwhelmed as foreclosure proceedings are painstakingly reconstructed and reattempted.
Because of the way that millions of home loans were sliced and diced—before being bundled into bonds that were sold to investors during the housing boom—there are often lengthy and wildly confusing paper trails that obscure ownership.
There is no way to overstate the implications this will have on the foreclosure industry and the banks/lenders behind it. For the banks, this ruling is an utter disaster.
The additional problem for the banks is that the ruling will likely unleash a wave of lawsuits from the buyers of bank-owned properties. Those folks will want evidence of clear title, which will be hard to come by in numerous cases.
What's more, there will also be lawsuits from the holders of mortgage-backed securities who have already taken huge losses that are soon to become even worse. Many of them are huge, institutional investors with deep pockets and teams of lawyers.
The securities in question were fraudulently constituted. The banks didn't even own the mortgages in many of the securities they sold.
What is particularly stunning is that it was the banks, not the homeowners, who filed this case in the first place. This decision is certainly not the one that the banks were expecting.
The court said that its ruling applies to all foreclosures in Massachusetts — no matter when they took place — because laws governing proper foreclosure procedures have remained constant over time.
“All that has changed is the plaintiffs’ apparent failure to abide by those principles and requirements in the rush to sell mortgage-backed securities,’’ Justice Gants wrote in the decision.
The reverberations from this decision have only just begun. They will be felt far and wide, and they will be historic.
However, since the banks are the masters of those in Congress and the White House, there is always the possibility that all of this will somehow be smoothed over by our lapdog government.
After all, America has long since become an oligarchy.
Sunday, January 09, 2011
However, only about 1 percent of the overall US population qualify as millionaires.
The median wealth of a representative was $765,010, while that of a senator was almost $2.38 million.
And, even during a deep recession, the collective personal wealth of congressional members increased by more than 16 percent between 2008 and 2009.
In contrast, U.S. median household income dropped 3 percent to $50,221 between 2008 and 2009, the second straight decline, according to the Census Bureau.
These findings were detailed in a report by the Center for Responsive Politics back in November.
The study also indicated that a significant portion of Congress owned shares of major players in the health-care and financial-services sectors, which were the subject of major reform legislation during the period.
Meanwhile, this body of millionaires, who all get government-sponsored health care — which many of them vigorously oppose — have decided that their first act in the new term will be to vote to repeal the health care reform that gives affordable care to 32 million Americans.
According to the Office of Personnel Management, the federal government pays 69 percent of the health care premiums for members of Congress.
This isn't an argument in favor of the health care law, which is riddled with problems; the bill is 2,400 pages long and was written by/with the insurance and pharmaceutical industries.
But it is quite ironic that politicians who have derided the health care law as 'socialist', or 'fascist', or any number of derogatory names, see this system as perfectly acceptable for themselves.
So, government-sponsored health care is good enough for the millionaires in Congress, but not for anyone else. Got that?
With this in mind, Senator Charles Schumer (D-NY) is calling on his colleagues to give up their government-sponsored health care.
"It was a central value to us when we passed health care, and a central value to the American people, that members of Congress should get the same health care as everyone else. It seems unfair that house Republicans want to deprive middle-class Americans of the same health care as members of Congress but to keep it for themselves."
While this may be viewed as grandstanding by Schumer, the simple fact is... he's right.
Thursday, January 06, 2011
Defense Secretary Robert Gates seemed to perform the impossible today when he announced $100 billion in defense spending cuts, while also unveiling a plan to grow military spending.
How's that for amazing?
The money the armed forces save from their budgets by canceling projects can be plowed back into their budgets for other programs. Gates found $100 billion in savings over five years, but allowed the Pentagon to keep that money.
Cory Shockey, who served on the National Security Council under President George W. Bush, sees Gates as somewhat of a magician.
"My sense is that he's actually pulled off one of the great Houdini acts of our time. Everybody's talking about this $100 billion cut in the budget. But what Gates has actually done is moved $100 billion from his existing budget, to his existing budget," says Shockey.
The Military-Industrial Complex is dedicated to its own self-preservation. There are numerous people in government, even elected officials, who will fight to no end for its survival — even if it means sinking the federal budget, and America itself.
Case in point; just days ago, Senator Lindsay Graham (R- South Carolina) said he wants American officials to consider establishing permanent military bases in Afghanistan.
Apparently, Sen. Graham hasn't seen the federal budget, the deficit, or the $14 trillion national debt.
Believing that the US can continue to spend more on its military than every other nation in the world — combined! — is plainly delusional.
The combination of defense spending and Homeland Security amounts to the single largest expenditure in the federal budget.
To truly save this nation from financial ruin, that simply cannot continue.
Anyone who is serious, and sincere, about reducing the deficit and the debt, must admit this.
And they must also take steps to thwart people in government like Robert Gates and Lindsay Graham.
The Military-Industrial Complex must be broken in order to save America.
Tuesday, January 04, 2011
According to the Center on Budget and Policy Priorities, 39 states have projected budget gaps for the 2012 fiscal year.
With its projected $28 billion deficit, California has gotten most of the national attention. Illinois, New York and New Jersey have also received plenty of press.
However, another state — one that hasn't gotten nearly as much attention — also faces an enormous and troubling debt.
Texas has long prided itself on its low-tax, business-friendly model. And its governor, Rick Perry, has boasted that this has led to a more robust economy and sounder finances than other states.
However, the Texas budget deficit may have now spiked to level as high as $25 billion. The actual figure will be announced this month.
The state budgets in two-year cycles. It's next budget will be around $95 billion. So, a $25 billion deficit is just massive.
Texas is among seven states with no personal income tax, and raising taxes is not an option for its Republican, anti-tax governor. Sales taxes, which are falling, account for about 65 percent of revenue.
The Texas constitution requires a balanced budget, so the state faces scaling back already lean budgets for education, healthcare and public safety — all of which previously underwent cuts in 2003.
Education accounts for 55 percent of state spending. Healthcare accounts for 25 percent of spending. And public safety accounts for roughly 10 percent.
Further cuts would be devastating. At present, 26 percent of Texans are uninsured — a higher percentage than in any other state. The estimated average salary of public school teachers ranks 39th among states, with state and local expenditures per pupil in public schools ranking 44th.
There simply isn't much lower to go in each of these categories.
The Lone Star State is in big trouble.
Texas appears poised for a fiscal meltdown, and that has the potential to rock the bond markets in 2011.