Month: October 2013
Emmanuel Tea Party Goldstein
You know, the last eight years or so have educated me – at least socially and politically – as much as the eight years that I spent in high school, college and the first year in the military ever did. Who says you stop intellectually developing after your mid-forties? I suppose the most-eye-opening development is that I have now seen for real and in real-time that which I had only read about in history books; mainly the development, perpetuation, care and feeding of “The Big Lie.” As defined by the erratic but invaluable Wikipedia, that is “a lie so “colossal” that no one would believe that someone “could have the impudence to distort the truth so infamously.”
But the ‘big lie’ has worked, over and over again – and most especially and effectively when it is chorused from every corner and by every authority. The latest example and the one which I find most personally outrageous is this one; (found through Legal Insurrection at the National Review); one Alan Grayson, a Democrat member of the House of Representatives has sent out an email to his supporters casually equating the Tea Party with the KKK. As a southern Democrat, Rep. Grayson is, of course, an expert on the KKK, seeing that they served as the shock troops of Southern Democrats. Other leading Democrat Party figures have passed remarks just as disparaging of the Tea Party; I suspect that they are actually mistaking the straw-man Tea Party construction of their own mind, rather than the earnest, hardworking and mostly middle-class fans of fiscally-responsible, strict Constitutionalist and free-market policies which made up most of the Tea Party members I am acquainted with. How such a body of people can be made out to be the sinister Goldsteins and calumniated with such vicious enthusiasm, solo and chorus is almost beyond belief – but they are, and it is only getting worse.
A good portion of the citizens of the United States are being ‘othered’ by those who disagree with them politically and philosophically – and by people you would have thought would know better. The establishment media and pop-culture organs are aiding and abetting this, not realizing that it is only a short step from ‘othering’ to declaring open season – literally. The next step is already being contemplated, although it is hard to tell how seriously the petition to arrest and try the leaders of the Republican Party for sedition, merely for having had the temerity to oppose the current administration. There is something bad in the water, when being in political opposition is considered ground for criminal charges. The comments appended to this story, and this one are dispiriting to read, for too many commenters voice enthusiastic agreement and approval. To be fair, a good few commenters warned against this criminalization of political dissent – since the sauce for the Tea Party goose might just as easily be served up with the progressive gander. Taken all together, this does not augur well and it certainly heats up the cold civil war a couple of more degrees.
Where health care may be going.
UPDATE: I posted this as much for myself as for others to read. Today, Peggy Noonan weighs in. In case this is behind the paywall, here is her conclusion.
Even though it’s huge, and those who are reporting the story every day are, by and large, seasoned and have seen a few things, no one seems to know how it will end. Because it’s new territory. Does anyone believe the whole technological side can be fixed quickly? No. The president may eventually accept a brief delay in implementation—it is almost unbelievable that he will not—but does anyone think that the economics of the ACA, the content as set out and expressed on the sites, will flow smoothly, coherently, and fully satisfy the objectives of expanding health-insurance coverage while lowering its cost? You might believe that, but early reports of sticker shock, high deductibles and cancelled coverage are not promising. Does anyone think the president will back off and delay the program for enough time not only to get the technological side going but seriously improve the economics? No. So we’re not only in the middle of a political disaster, we’re in the middle of a mystery. What happens if this whole thing continues not to work? What do we do then?
This is the Titanic, folks.
I have watched the failed rollout of Obamacare this past three weeks and wondered where it was going. I have some suspicions. There is a lot of talk about delaying the individual mandate, as Obama did with the employer mandate. Megan McArdle has a post on this today. I think it is too late to fix or delay Obamacare.
With Nov. 1 storming toward us and the health insurance exchanges still not working, we face the daunting possibility that people may not be able to sign up for January, or maybe even for 2014. The possibility of a total breakdown — the dreaded insurance death spiral — is heading straight for us. The “wait and see if they can’t get it together” option no longer seems viable; we have to acknowledge that these problems are much more than little glitches, and figure out what to do about them.
She has already described the insurance death spiral. I think it is here.
Am I exaggerating? I know it sounds apocalyptic, but really, I’m not. As Yuval Levin has pointed out, what we’re experiencing now is the worst-case scenario for the insurance markets: It is not impossible to buy insurance, but merely very difficult. If it were impossible, then we could all just agree to move to Plan B. And if it were as easy as everyone expected, well, we’d see if the whole thing worked. But what we have now is a situation where only the extremely persistent can successfully complete an application. And who is likely to be extremely persistent?
Very sick people.
People between 55 and 65, the age band at which insurance is quite expensive. (I was surprised to find out that turning 40 doesn’t increase your premiums that much; the big boosts are in the 50s and 60s.)
Very poor people, who will be shunted to Medicaid (if their state has expanded it) or will probably go without insurance.
Levin points out: It is now increasingly obvious to them that this is simply not how things work, that building a website like this is a matter of exceedingly complex programming and not “design,” and that the problems that plague the federal exchanges (and some state exchanges) are much more severe and fundamental than anything they imagined possible. That doesn’t mean they can’t be fixed, of course, and perhaps even fixed relatively quickly, but it means that at the very least the opening weeks (and quite possibly months) of the Obamacare exchanges will be very different from what either the administration or its critics expected.
The insurance industry is already reacting to Obamacare and this will quickly become irreversible. This article is from September.
IBM, Time Warner, and now Walgreens have made headlines over the past two weeks by announcing that they plan to move retirees (IBM, Time Warner) and current employees (Walgreens) into private health insurance exchanges with defined contributions from employers.
The article calls it “maybe a good thing” but that supposes the exchanges will function. What if they don’t for a year or more ? What will health care look like in November 2014 ?
What happens next — as we’ve seen in states such as New York that have guaranteed issue, no ability to price to the customer’s health, and a generous mandated-benefits package — is that when the price increases hit, some of those who did buy insurance the first year reluctantly decide to drop it. Usually, those are the healthiest people. Which means that the average cost of treatment for the people remaining in the pool rises, because the average person in that pool is now sicker. So premiums go up again . . . until it’s so expensive to buy insurance that almost no one does.
Will that be apparent a year from now ? I’m sure the administration, and the Democrats, will do almost anything to avoid that. What can they do ? They’ve already ignored the law to delay the employer mandates. It’s too late to delay the individual mandate because individual policies are being cancelled right now.
Landmark Case Possibilities With Detroit Chapter 9
Today, the trial begins to determine if Detroit can enter chapter 9 bankruptcy. I have been trying to read a lot about what this means for the muni bond markets. As of right now, not much. But in the future, possibly a lot.
Here is a great piece on the subject and one that I will refer to through this post. It is written by the Chicago Fed, and explains what is going on, and how the Emergency Manager, Kevyn Orr, is going about trying to right the ship. The document is short, but somewhat dense. I had to read it three times and making some notes helped me understand it better.
After making this diagram, I joked to myself that this is probably a better flow chart understanding of the City of Detroit’s debt than any sort of financial documents the city of Detroit had prior to the EM taking over. But I digress.
After the issue of letting Detroit go Chapter 9 is resolved (I guess I don’t really see any other option) there are several interesting issues that may affect the muni bond market moving forward.
The debt looks like this, in simplified form:
Water and sewer debt – $6bb
General Obligation debt (limited tax backed and unlimited tax backed) – $1bb
Pension Obligation Certificates and associated swaps – $2.3bb
Pensions – $3.5bb
Other Post Employment Benefit Obligations – $5.7bb
First, Orr has decided that the only things that he will be treating as secured debt will be the water and sewer system bonds (backed by a pledge of revenues from the utility system) and the “double barreled” UTGO (unlimited tax general obligation) and LTGO (limited tax general obligation) bonds. Double barreled means that these certain bonds have separate income streams derived from the State of Michigan. This is significant because no General Obligation bond in the muni universe in any Chapter 9 filing has ever been impaired (with the exception of the disastrous Jefferson County, Alabama filing in 2011). Basically, Orr is offering ten cents on the dollar to EVERYONE that is not secured. This includes pensions, OPEB (other post employment benefit) plans, pension obligation certificates, swaps, and all the rest. In the middle of this, the fact that Orr treated the UTGO debt (which can be funded by unlimited property tax levies) just like all of the other debt is a first. This will also be settled in court, and will affect the perception of a lot of other cities’ GO debt as relates to the backing by property tax levies.
The next Big Deal to the muni bond universe is that there is a conflict between state and federal law as to if Orr can pound down the pensions and OPEBs. Law in the State of Michigan says he can’t but federal law has no issue with it. There is no law on record that addresses this and I am sure it will be a bitter battle to the end. If there is some sort of sweeping Tenth Amendment ruling that says that you can’t touch the pensions, this will affect the debt of a LOT of large cities that have similar state laws in place, such as Chicago, LA and others that have giant unfunded pension obligations. But to me, winning this in court is one thing for the pensions, actually getting the money out of the city of Detroit, that has none, is quite another. I am sure that they would at that time try to get preferred secure status over the utility bonds, but I don’t think that will really happen.
So far, the markets have just shrugged their shoulders at this whole affair, with the small exception of punishing the bonds slightly from places in the State of Michigan. I am sure that as this disaster winds its way through the courts, that this may change. Being an investor in the muni market, I will be keeping a close eye on how this plays out, as well as the soon to be crisis in Puerto Rico.
Cross posted at LITGM.
“Let The Fire Burn” and Police in 1983 and Today
Last night I saw a documentary about the 1985 conflict in Philadelphia against the “Move” organization which featured a shootout and finally a helicopter dropping a bomb on a fortified building and 60+ row houses in a heavily populated city leveled by fire. The documentary was called “Let the Fire Burn” and it was primarily based on archival video from an inquest that the city of Philadelphia had after the sad incident, vintage news footage that was “live” at the time, and videotaped depositions of the survivors.
One angle that I found intriguing is the relative lack of sophistication of the police in 1985. Prior to the 1985 bomb incident, there was a 1978 incident where “Move” supporters were involved in a firefight with police where a policeman was killed and many others were shot. When police captured one of the “Move” members that surrendered, they beat him up on camera, in what was likely one of the first incidents filmed in this manner (the police were found not guilty). Thus during the 1985 incident, the Philadelphia police were heavily armed and on their highest guard when it came time to attack the “Move” compound.
“Move” built a bunker on the roof of a row house, apparently out of wood but reinforced with metal, with firing ports to command the street. When the police attacked, they used a water gun from a firetruck, but it wasn’t powerful enough to knock the bunkers off the roof.
At one point the police ran out of ammunition. During this siege they fired over 10,000 rounds into the house. A local news segment shows a county policeman showing up with a trunk full of ammo that is distributed to the police, in order to replenish their supply.
After giving up on randomly shooting into the building, and noting that the fire hose wasn’t working, they decided to drop explosives on the roof with a helicopter. The explosives didn’t blow up the bunkers. However, after 15 or so minutes, the building started to catch on fire until finally there were flames shooting ten stories tall (per a local news account). The title of the film “Let the Fire Burn” alluded to the supposed order (disputed by many) to let the fire burn in order to remove that bunker from the roof where the “Move” supporters could have fired on police. In the end, the entire building went up in flames and then 60+ buildings were burned.
It is interesting to consider how different this could have turned out in 2013. The police likely have many modern war veterans in their ranks who would be accomplished shooters (the modern war brought the sniper back to the fore) and could have likely picked off the “Move” supporters had they shown themselves anywhere without shooting 10,000 rounds to no avail. There are other ways to break into / destroy a fortified location, especially given that the order to storm the “Move” HQ was given in advance and they had time to prepare. The police are full of veterans who have stormed into heavy buildings and cleared them of enemies, basically “street fighting” experts.
The police accounts depicted in the documentary are often contradictory; no automatic weapons were found in the “Move” HQ and yet it seems that the original shots fired came from automatic weapons, implying that the police may have inadvertently started the shooting war.
I hope that a situation like this wouldn’t occur nowadays but I am confident that the police have the means to deal with an armed and fortified opponent, or could call in resources that could do this. By comparison the 1985 police in Philadelphia look outmatched by a simple bunker and a few older rifles. To fight them, the Philadelphia police ended up using the oldest of weapons, fire.
Cross posted at LITGM