Financial Reform

Nations around the globe are still feeling the impact of the financial crisis that resulted from institutional and individual greed. To limit the collapse of the financial system and the impact of the damage governments pour billions into the financial system.

Leaders of financial and real estate institutions created innovated, confusing and misleading products to make billions of dollars and fleecing tens of millions of people in the process. Financial reform has been proposed but the leaders of the financial industry are resisting saying that reform is not needed and reforms will hinder their ability to generate a maximum return for their shareholders.

Various politicians, mainly staunch conservatives, are lining up to resist reform and allow only cosmetic changes be made. While it may be hard to believe there are some who are advocating for greater deregulation and blaming what regulations remain in place as the cause of our economic problems.

While various factors ranging from subprime mortgages to inflated housing prices to derivatives to deregulation of the financial industry are behind the collapse let’s be clear that the primary underlying factor was greed. Greed will always exist, and any claim that the financial industry will not repeat the same mistakes naïve thinking. Deregulation removed many of the regulations that came out of lessons learned from the Great Depression and low and behold the financial industry repeated several of the same mistakes that created the Great Depression.

When a firm has become too large to fail, the country has a problem. When a bank can hold my bank account, my loans, sell insurance, be engaged in hedge fund trading, and other highly speculative instruments, the bank a bank in name only. No firm should be too large to fail. A firm like AIG that gets into difficulty should be closed with the profitable segment/accounts sold off/liquidated by the government, and shareholder equity lost.

Banks that hold my loans and accounts should have a higher level of accountability than an investment back. This may mean that a bank would be smaller than some of the existing megabanks.

Serious financial reform is necessary. If meaning reform fails, we need to watch our pockets like a hawk and view with askance anything our financial institutions put out as claims and promises.

Auto Quality and Recalls

In this past week Toyota recalled 1.8 million vehicles in North America to correct a gas pedal problem. The recall was widened to include an additional 2.3 million vehicles worldwide. This is the second recall in recent months for many of the same vehicles. Yesterday, Honda too announced a recall of 640,000 vehicles worldwide.

While a recall if handled swiftly and correctly can indicate that a company is concerned about its customers, Toyota has somewhat stumbled on the gas pedal problem. Though the company has been aware of the problem for some time, they issued the recall only after weeks of conversations with the US government and with the knowledge that the government was moving toward issuing a mandated recalls. Their slow response is a repetition of the errors American manufacturers were making twenty years ago.

Toyota made a further misstep when word came out that the replacement parts were being shipped to factories and that they would not be sent to dealers for some time yet. This decision shows that Toyota is more focused upon selling new vehicles first and then dealing with existing customers. Toyota should have sent 55 to 65% of the first parts to dealers so that they can get the repair pipeline going.

Recalls are not new to the Japanese automakers, it is just that they have not received the news coverage in the past as they are now or as American automaker recalls. When one has a small share of market, recalls take place with little notice by the press or public. Now that Toyota and Honda have such a large share of the market place, they will have to get use to the increased press coverage.

The larger the company, the more media attention you receive and the greater the chance that there will be a problem with a part. In an effort to keep manufacturing costs down and maximize profits, problems with the manufacturing of a part or a design flaw will be increased.

The recalls do not indicate that the Japanese vehicles are inferior vehicles. Rather they indicate that they have flaws just like their American competitors. For though for last ten years Ford and GM have made quality vehicles across many of their lines that are at or near the level of the Japanese, the perception of Ford and GM of the past has continued to impact public perception. With increased attention of the Japanese recalls and their problems, Ford and GM will be viewed in a fresh light.

Stunning Thoughts

The following two clips speak volumes. The thinking behind such views and comments is beyond rationality and sensitivity.

The They Can Get Help Falacy

In the health care debate there are those who argue that it is not necessary as people can already get medical treatment by visiting an ER as hospitals cannot deny them. This perception is both partly true and false. It is true that hospital ER rooms cannot deny a person who has a life threatening condition. They are required to offer treatment but only to the point where the person is no longer in the life threatening condition. Hence, a woman can receive care when she is starting to deliver her baby, but she cannot receive any treatment before that moment, and if the baby is born and mother and child well, they are quickly released.

Is the service that the hospital provides really free? No. The hospital will still go after the patient for the cost of the bare minimum to stabilize them. They will be billed and if the bills go unpaid and there are assets to which a lean can be attached, a lean is attached. If the person has a job, their salary will be garnered. The collections process adds costs and overhead to the hospital. What remains uncollected is still recovered by the hospital. The hospital does provide medical charity. It is a profit making venture and its losses are charged off in the fees charged to other patients.

For those who lack health insurance there is a double whammy, they get charged a higher rate for that which they cannot afford. We have several bills from my wife’s recent annual check-up. Each of the half-dozen items are discounted from 35 to 50% off which the insurance plan pays 80% leaving us with the remaining 20%. For example the one item that was billed at $323 was discounted to $170 with the plan paying $136 leaving us to pay $34. If we did not have medical insurance there would be no discount and would owe $323. Hence, those cannot afford medical insurance, or are denied coverage due to a pre-existing condition, or who have changed jobs and have yet to get beyond the 90 day, or 120 day or 180 day wait period, for that which they cannot afford in the first place are charged a much higher rate.

By the way, if she used a provider not approved by the plan (less than a third of the doctors in our area are approved) then the discount would be far less and our portion would be 30 or 40% depending on the nature of the item.

An Insidious Selfish Nature of a Complaint About Health Reform

Circulating amongst some critics of health care reform is that the health care system cannot handle all the extra new people who would come into the system. They state there are no provisions for increasing hospital capacity or the number doctors. Hence, there will be longer waiting times to see a doctor or get treatment in a hospital so health care should resisted.

In my August 7 blog was the first time I noted this criticism. While I touched upon it then, due to its insidious selfish nature it is worth visiting again. While expressed in various frameworks, the argument is essentially, if you are not already insured I do not want you in the system as I will have to wait a little longer to see my doctor and wait longer in an emergency room or get a bed in a hospital. While people using this argument may be good and well intentioned, I suspect that most are using this uncritically and without any thought as to its self-centered natured, that they would rather someone else not get medical care because they do not want to wait. What I have found most disappointing is that this thinking is circulating within the evangelistic community, the very community the speaks with pride about the value of sacrificing self for others, and the importance that we love and care for those in need.

As for hospital capacity, let us not forget the hospitals are private corporations that are expected by their shareholders to make at least a 20% profit annually (see my Sept 10 post). The firms that run hospitals are some of the most profitable firms on Wall Street. Like any corporation, their mission is to make as much money as possible by charging as much as they can while keeping their expenses as low as possible. As there is such competition between hospitals, they are driven to have the latest and largest machines possible, to provide décor and frills for staff, patients and visitors that are designed to make people feel more positive about the hospital in question so that they will give them their business.

If hospitals feel that they can make more money by expanding, they will do so. If expanding services does not add to their bottom line, they will not expand. As hospitals are a for profit identities, the government should not fund their expansion so that they can increase their profits. Government should only fund hospital construction when there is a clear benefit to the citizens, such as in attracting a hospital into a low income or rural community, or that there will be some control on fees charged.

As for the number of doctors, whereas in other industrialized countries governments are heavily invested in paying the majority of the costs of medical training, this does happen in the United States. Whereas in other countries the government helps to regulated how many individuals may be accepted into medical schools, in the United States this does not happen. Each medical program sets its own enrollment levels which are balanced between the demand-supply formula, attrition and the costs of producing a medical practitioner. While medical schools may get some funding from government grants, the bulk of a medical school’s funding comes from tuition and donations from the public, corporations and private foundations. A student receiving grants/forgivable loans to work in underserved communities is another matter. Ultimately, if there is a demand for more doctors, nurses and other medical personnel, and if the schools can raise the funds, and if there are sufficient qualified applicants, they will produce more medical personnel.

The United States unlike Canada and many other developed countries produces far more specialists that general practitioners. In Canada, France, Scandinavia, Germany, Great Britain, Italy a as well as in many other industrialized countries, more doctors are GPs than specialists. In these countries governments are involved in funding medical education at a much high level than is the United States. These countries allow only so many specialists to emerge from their medical schools for they place their focus upon preventive care and catching problems at an early stage. Within a financially driven system as exists in the United States the medical schools produces more specialists than GPs since specialists have greater earning potential than do GPs. In Canada I often could get into see my GP for a non-pressing matter in less than half the time it takes for me to see my GP in Iowa City or in Fairfax.

Health Care Reform and Rationing of Medical Care

Another red herring attack against health care reform is that it will lead to rationed medical treatment. Still another issue is that the reform will put the government between me and my doctor. As these are two sides of the same coin I will deal with them at the same time.

If you consult your medical coverage manual to check if a procedure is covered, you are already under the umbrella of a rationed system. If you have a list of doctors who you can visit under the plan at the full deductable and that list does not cover almost every doctor in the community, you are under already living under a rationed system. If you have to contact your provider for approval of particular procedures before receiving treatment or visiting the specialist, then you are living under a rationed health care system. If there are annual and/or life-time treatment limits in your medical plan (most plans have such a feature), you are living under a rationed system.

All but the most luxurious plans are rationed health care. The plans control which doctors I can visit with the plan covering the fees and what treatment they will cover. When my health care provider requires pre-approval, denies a service and mandates an alternate treatment be explored first a health care bureaucrat, most of whom have no medical training, has come between me and my doctor. Since living in the United States I have had more health care bureaucrats involved in medical decisions than I ever experienced under the Canadian system.

Annually my employer tweaks the medical plan in an effort to control costs. A shifting plan is a reality of the American system. Americans live under one of the most rationed health care systems in the world. The problem is that the average American is totally powerless to impact their design and shape of their health care plan. The decisions are made by the employer and the medical insurance provider as to what will or will not be covered. I could purchase off-system packages, but they are costly and full of loop-holes many of which only become apparent when I need treatment.

The average American would be surprised by the freedom and the quality of care they would experience under the German system, or the Swiss system, or the Italian, or the Japanese or the Canadian systems, all of which have been rated as having a superior system for the average system and at a less cost. In none of those countries are the range and extent of the American pre-approval processes does not exist. In those countries the plan outlines what is covered and what will not be covered, and that list is often more extensive that most American plans.

Then why would Americans strongly defend their existing system while turning a blind eye to the shortcomings of their own system? One reason is the American exceptionalist mindset. Americans, both leaders and the masses, believe that in most areas they have a superior systems and that while the world can learn from them, they have little to learn from others. American pride holds that America is the best in all areas, only grudgingly concede they are not the best in an area only when the volume of data indicates that their “best” position is no longer defensible on that matter.

In 1994 Taiwan decided to overhaul its medical system. Taiwan is a country that looks to copy the United States as much as possible. The Taiwanese initially looked at the American system and started to consult ex-patriots and second generation Taiwanese-Americans who were involved in the American system. The Taiwanese government heard over and over again, do not copy the American system as it is inferior to any other health care system existing in the developed world.

Healthcare Unconstitutional

On of the arguments being made against the American health care reform is that it is an unconstitutional act by the Federal Government. It is argued that the Constitution does not explicitly grant the Federal Government authority over health care. It is true that the Constitution does not give the Federal Government authority over health care just as it does not give the Federal Government authority over a host of matters such as the transportation and telecommunication system or over employment and safety practices.

Hence, federal authority is non-existent to regulate regarding mine safety changes that have literally saved hundreds of lives a year, pollution of the water and air, the air transportation system and funding of roads. It also means that the federal government has overstepped its authority to set mandatory standards regarding automobile safety. I for one would not travel by air or even feel comfortable driving my vehicles above 30 mph without the assurance of Federal regulations and processes from air traffic control, aircraft maintenance, and safe automobiles.

We must remember that there is a distinction between that which is prohibited versus that which is not explicitly addressed. Involvement and regulation of health care is not prohibited the Constitution.

Advocates who argue that health care reform by the Federal Government is unconstitutional are by extension arguing against the Federal Government’s involvement legislating regarding the airwaves and Internet content. Many of these same advocates are calling for the Feds to put in place regulations to put further limits upon things such as pornography. Many of those who are using the unconstitutional argument also call upon the same government to outlaw abortions. If we accepted their unconstitutional argument then they are calling upon the government to do an unconstitutional act, albeit on a different issue, as the Constitution is silent on the pro-life vs pro-choice/abortion debate.

We must remember that the Constitution was penned in one age and in what the authors could envision happening in the future. No one has advocated that the authors of the Constitution were prophets or clairvoyants who foresaw a society far beyond their own. They could not foresee the abortion debate. Abortion was rare and very dangerous in the 18th century, so much so that it was known only to a small handful of people. They saw the world within the national and international political realities of the day and the technology that they could envision of the horizon. They knew of health care, but it was a crude undeveloped system. Hospitals were rare. People lived and died in their homes using home remedies. They did not foresee the modern transportation and telecommunication processes.

That said, they did understand that society and the world evolves. Hence, they empowered a process that encouraged debated and a process of designing laws and regulations to address new challenges. They designed a government that is called to be flexible and creative in addressing modern issues based upon the founding principles.

One of the other arguments that some grasp to argue against the current legislation is that it has passed because of add ons that were done to secure a person's votes. The American political system is not a Parliamentary system where legislation is focused and rarely includes special riders. From the beginning the American system is about trading of favors whereby one member of Congress will support another in return for his/her support for their proposals or for a rider to be included. Hence in the United States to gain a vote it is it not uncommon for a rider to a transportation bill to have a special grant for a company or public work in a particular district. What happened in getting the 60 Senate votes to prohibit a filibuster is such a common event that rare is a bill passed that does not have several riders, a good number of which have little to do with the particular bill.