News

I started MyLastLecture.org - check it out, or don't. Hope it catches on like wild fire, not wildfire, like a fire, that is wild.

Also, regarding the current situation of healthcare reform legislation. Dammit. The votes aren't there in the Senate, so this means the House has to pass it, or as much of it as possible can be passed with a simple majority through the budget reconciliation process. This is the best method, because otherwise it will get pared down to a shell of itself. However, the Parlimentarian hasn't ruled yet on just how much of the bill could be passed this way. It only applies to spending or taxing, and many of the core programs (exchanges, eliminating heinous insurance company practices, setting up cost control pilots, Medicare Advisory Board) are not on budget. As is often the case in this life, the most important things are always both a blessing and a curse. These measures will likely save the most money (trillions, not to mention many lives), but because it doesn't dirctly spend money, it can't be considered through reconciliation. And all because of Kennedy's seat. The cruel cruel irony. Here's to good news out of the Parlimentarian's office.

Also, today J.D. Salinger died. From Catcher-

When I was all set to go, when I had my bags and all, I stood for a while next to the stairs and took a last look down that goddam corridor. I was sort of crying. I don't know why. I put my red hunting hat on, and turned the peak around to the back, the way I liked it, and then I yelled at the top of my goddam voice, "Sleep tight, ya morons!" I'll bet I woke up every bastard on the whole floor. Then I got the hell out. Some stupid guy had thrown peanut shells all over the stairs, and I damn near broke my crazy neck.

Anyway, I'm sort of glad they've got the atomic bomb invented. If there's ever another war, I'm going to sit right the hell on top of it. I'll volunteer for it, I swear to God I will.

Boy, when you're dead, they really fix you up. I hope to hell when I do die somebody has sense enough to just dump me in the river or something. Anything except sticking me in a goddam cemetery. People coming and putting a bunch of flowers on your stomach on Sunday, and all that crap. Who wants flowers when you're dead? Nobody.

Don't ever tell anybody anything. If you do, you start missing everybody

Enforced Mediocrity

I feel like a prisoner to mediocrity many mornings and evenings, shuttling back and forth to work on DC Metro (and perhaps for other reasons ha). DC Metro. That name has a good ring to it. The Nation’s Capital. The seat of power of the most powerful nation the world has ever known. Perhaps to introduce a (very) healthy dash of humility, introductory training for Freshman lawmakers (and perhaps the not so fresh as well) should include a requirement to have to commute via Metro for a couple months. Maybe the drive for government reform would be just that much stronger and more urgent as a result of what these aspiring legislators experienced. It would illustrate so many “fascinating” aspects of government management. And it’s a shame- that the most well worn experiences most people have with government often have to make those who fight for higher government performance and accountability and management look so pathetic. (As a disclaimer I am not proclaiming to be in this group, but I have seen them, they exist.)

If the keyword in our collective game of Family Feud was “government” I imagine the top five would be something like- taxes, DMV, seatbelts, waste, and- public transportation. If nothing else this is guilt by association. It often appears as if there is no leadership in Metro- which in and of itself is an impressive feat- to give the appearance of an utter lack of anything, a complete vacuum of management or direction or leadership. In this respect, deep space and the DC Metro are very alike. That, and they both cryogenically deep freeze the souls of any human beings who are exposed to them for more than a few minutes. Train time arrivals are like a game of dominos, the times change and cascade in different orders without warning- from perhaps, 2 to 12 minutes, with the swift authoritative and utterly random shift of an LED light. Hundreds of people fill the entire platform, sometimes up to 12 deep, awaiting a train that always arrives short two cars- needlessly leaving 25% of the platform unused. Passengers not uncommonly faint or get sick from the manual, jerky stop. My last ride from Adams Morgan to Dupont involved nine separate accelerations and brakings- to cover maybe seven blocks. There must be traffic ahead, or bumps in the tracks, or maybe a deer ran out in front. Trains arrive heading opposite downtown in an approximate three-to-one ratio to inbound trains in the mornings- and the reverse in the evening. Maybe the metro managers think rush hour works in reverse in DC. Escalators prove impossible to maintain for even a few consecutive days, with plywood cases often blocking them for weeks at a time.

Riding metro feels like stepping into the Great Depression. The energy level of grimaces, snipes, grunts, glances- mimic the feel of mass, shared suffering that defined that era. People throw their courtesies out the window- yesterday I got cut in front of by both a portly cheery-faced woman and a man with a Costco sized stroller. I don’t mind, it doesn’t bother me, I’d in fact gladly wait for the next train so they can board- which I did. But something tells me this isn’t these peoples’ normal personas. That maybe Metro naturally brings out the worst in people. That maybe that dad who girgles at his baby for two hours every night, also forearm shimmies people in the morning to slip down the escalator to catch the arriving train, and maybe he wonders what the hell he was doing at night, feels guilty, suppresses and channels that anger, and becomes a slightly more bitter, unhappy person. Perhaps this makes him a marginally worse father, worse husband, emotionally less available or feeling of his child. Perhaps Metro's service- our shared couple hours a week- tears slightly, but meaningfully at the fabric of our communities, our homes, our belief systems, our families- ourselves. Metro is a microcosm of the inert and faceless forces of modern life that simultaneously know nothing about us, but dictate the very minutia of our lives, that trusts a smaller and smaller bit of us everyday.

And before you write this off as a misanthropic diatribe (nothing about that is inherently unacceptable to me however) or observations divorced from the responsibility of constructive criticism end efforts at self-improvement- consider that Metro will get $150 million in Federal Funds this year to….very auspiciously- improve their service. Consider that every person I’ve talked to would pay more to have a better Metro, and none has ever complained about their $3.20 daily fare so they can save hundreds a year not driving. In June, nine people were tragically killed on Metro in a horrific accident. This is all the more reason to aspire to more, to a more efficient, safer train system- it is not a pretense to eliminate two cars off a train. I wish you could transfer Moscowans from 1920s Stalinist Russia to Washington, D.C.’s Metro in 2010 and explain that we have not figured out a way to safely operate an eight car train. It would utterly perplex them, as it should. Metro riders include some of the most hardworking, brilliant, beautiful, promising, driven, and often, powerful and influential, people in the country. This makes our shared enforced mediocrity all the more tragic.

Couple music videos.

My Internet connection took the better part of an hour to upload, so they're all fuzzy-

Let's make some work

All too often it seems policymakers equate increased spending with job creation, or job creation with increased spending. The two are directly correlated, in a Keynesian macroeconomic sense, which is exacerbated by all kinds of negative feedback cycles during a recession (asset depreciation, liquidity traps, wage-demand spirals) but far from the same. But does it really cost $500,000 of direct government appropriations to create a job? That’s the not so pretty math update from the Recovery Act, which has spent about $350 billion so far and created some 700,000 jobs. Just as an employer creates jobs because of the marginal productivity of that job, and not tax rates, e.g. an employer will hire a worker at salary $X if they produce something worth >$X if the tax rate is 50%, but not hire if the salary exceeds the value of marginal product even if the tax rate is 0%- the government only drives organic job growth when it's profitable. Otherwise when the appropriation runs out, the job runs out. Employers would prefer to keep more of their profit, but they don’t care how much the government takes of non-existent profit. So tax rate arguments are of almost secondary importance- of primary importance is industry, market creation.

As DC turns to Job Creation: Act II, the focus should be less on throwing more money out the door, and more on making promising nascent growth industries profitable. Temporary government expenditures will create more temporary jobs, two or three year tax credits in long-term infrastructure driven sectors, like clean energy or biotech, will continue to not pencil out on 30-year amortized balance sheets. Profits won’t return to Main Street until new industries are profitable industries. America will only sustainably recover from the latest credit driven asset depreciation shock when there is either paradigm shifting technical innovation that changes the profit calculus (say of silicone being cheaper than coal, or server space being cheaper than a piece of paper; a hard bargain), or when the government just decides to change the calculus itself.

Congress could establish a set of 30-40 year tax credits and streamlined regulations (the one or two year stuff they’re used to releasing a couple months after the last temporary set expired doesn’t fool even the macabre neophyte investor class) that will spur private sector investment and growth. On my short list of such credits? for starters a $.03/kWh clean energy production tax credit, cheap leases on set-aside government land to build new energy infrastructure, 50% tax deductions on all mass transit investments, and 30% tax offset for all biotechnology investments. Tax attorneys could fill in the details. And perhaps most beneficial of all, tax credit driven job creation would change government receipts (perhaps offset by higher top-end marginal income tax rates), but not directly add to deficit spending. The annual $1.4 trillion deficit we run now mandates we not continue short-term stimulus spending into the long-term, only further raising the cost of capital and chocking off promising nascent industries. The bottom line is there needs to be a paradigm shift from spending to incentivizing, from direct expenditures and subsidies, to indirect industrial tax policy. That’s why the much heralded “Jobs Bill” Leader Reid and Speaker Pelosi are corralling should not fall into the trap of thinking the only way for the public sector to create private sector employment is too bequeath it money, rather it could simply make it profitable. For all the economic carnage out there, we should begin to focus a little less on triage, and a little more on getting well.

either way

those moments pass
like bullets through chest
legs detach
vains spread
eyes swoon dangerous
an ocean of drugs
a swelling ego
cut down a dumb world
there is no choice
just the pull
the cut of that voice
kindred souls
every hour after
just leaky containers
every single part
ephemeral remainders
every single time
every moment
to ever be timeless
to ever hold my heart
murderered either way

The President's Financial Regulatory Proposal

About two days a week throughout the fall last year there would be a black suburban parked on the street I walk from the red line to work. On these days I’d walk a little slower to see Treasury Secretary Paulson walk from a giant office building into the waiting car. I saw him the day after Lehman failed, the only thing fresh looking about him was his suit- and the day after the inauguration, with 8 foot high metal cage-like fences spilled down Penn Avenue as far as the eye could see, tons of trash blowing surreally in the freezing wind- this time looking more relaxed in his basketball shorts and unbuttoned shirt. It was pretty surreal to wake up and read the Journal or Times chronicling the latest historical market failure and then cross paths with its leading financial firefighter. A year later I’m afraid the sense of urgency of those fall months is fast diminishing. A tragedy of the last year is a terrible thing to waste. From the ashes of a failed regulatory system, that cost 3 million people their jobs and nearly as many their homes, and $7 trillion in wealth, is the promise to build a sleeker, more common-sense, more responsive regulatory system. And here many people will stop me simply with the semantics, “regulation” is a terrible word- so call it what you will. The basic concept though holds true in essentially every aspect of life. We don’t get on a jet plane and just hope the proper safety checks have been done and the pilot isn’t drunk, we “regulate” it, we don’t trust a stranger to deliver our new baby at a whim, we “regulate” it. So those who would notionally dismiss regulation as a bad thing should maybe stop flying or stop having kids.

The legal zeitgeist of these times is the President’s Financial Regulatory Reform proposal (http://www.financialstability.gov/docs/regs/FinalReport_web.pdf). In a little over two short months this entire white paper has been translated to authorizing language and sent to the Hill, where as usual it was met with a startling sense of complacency and criticism without much constructive feedback. If this can pass in some form by 2010 my hypothesis of complacency is proved wrong. If not, a similar asset bubble and burst cycle and all of the capital contraction, income decline and job loss and capital loss (repeat) is not just possible but probable. The impetus to correct a clearly insufficient financial regulatory regime – one that forced the government to choose between catastrophic failure and chaos or injecting huge of amounts of taxpayer dollars- is otherwise lost. Critics can say what they like about the choices made last year, but with Bear, Lehman, AIG, WaMu- those were the options. Here are some core tenets of the President’s regulatory agenda.

1) Capital ratios. A working group is currently drafting the details due out in a couple months. When the banks’ experienced severe asset valuation shocks they were forced to liquidate and perpetuate the cycle. With better loan loss provisioning this cycle could have been prevented. In practical terms, probably means going from tangible common equity ratios of 4% to 8%.

2) Resolution authority. The FDIC can repossess and either break up or auction off bankrupt depository institutions. There is no similar authority for non-depositories or holding companies that own depositories. The Fed can loan money to anyone or anything so long as it is last resort and there is sufficient collateral. If there isn’t, then there is no way to protect innocent bystanders from the consequences of large bank failure. The President’s proposal would permit the Fed with Treasury consent, to seize and efficiently break up large failing firms.

3) Preventing regulatory arbitrage. Under current law, thrift holding companies (banks with a higher share of mortgages created to facilitate liquidity in the housing market), industrial loan companies (like GMAC or GE Capital), credit card banks, trust companies and grandfathered non-bank banks are exempt from most supervisory requirements, simply because they were left out of the BHC Act. Firms (like Bear, Lehman, AIG, WaMu) simply owned one of these entities and could simultaneously avoid regulation while having access to the Fed’s lending if they got into trouble. This gave the public no risk management function but sole responsibility should they encounter significant risk. Heads I win, tails you lose. Financial companies should not be able to escape consolidated supervision by technicality.

4) Systemic risk regulation. The proposal creates a new category of Tier 1 financial companies which will be overseen by the Federal Reserve. These would be firms whose failure threatened the entire market, and would be subject to coordinated and robust prudential regulation. Bank holding companies consist of so many separate entities that they can have a dozen separate regulators each and allows firms to arbitrage the differences to their advantage.

5) Consumer financial protection. A central catalyst of the ’08 recession was the set of uninformed and stupid decisions consumers made- like buying houses they couldn’t ever afford or signing up for credit cards with early payback penalties. The proposal observes correctly that finance and economics have a distinct world view, one that does not manage the cultural, psychological and communications challenges inherent in good consumer advocacy. There are bright lines that could be established, but it takes clear authority and communication otherwise it will likely die in the interagency process as it has for decades. Without clear responsibility for common-sense consumer protection there can be no accountability. There are consumer protections for seatbelts, kids toys and lawnmowers, it's time for some for households' budgets too.

6) Office of National Insurance Regulator. The U.S. regulates the insurance industry essentially entirely at the State level and is the only G-20 country without a national framework for insurance oversight. There is clear executive will to do so, now we need legislative consensus.

7) Office of National Bank Supervisor. This would consolidate the Office of the Comptroller of the Currency (which regulates interstate banks) and the Office of Thrift Supervision to oversee all national banks. One office in Treasury would have sole authority for national banks and be able to provide consolidated prudential oversight rather than the current fragmented system.

8) Financial Services Oversight Council. This would force regulators to actually talk to each other and coordinate policy while closing gaps in regulation. In ’08 we saw a fundamentally ad hoc response among the Fed, FDIC, OCC, Treasury and others with predictable turf wars and inefficiencies. Before any major action, like designating a firm a Tier 1 Financial Holding Company or intervening in an institution’s distress, this council would meet to have an integrated approach. It would be a consensus building forum while avoiding the tenuous nature of decision by committee by giving the Treasury Secretary executive authority as the Chairman.

9) Central clearinghouse of derivatives. This would establish a central resolution, clearing and payment exchange for derivates. Most derivatives today are cleared by JP Morgan and Mellon Bank of New York, so creating a consolidated exchange would be eminently doable. By providing transparency in this market, it would not prevent dealmaking, hedging or economically valuable speculation, it would just provide basic information to inform the price discovery mechanism. It was a surprise to most of the world that AIG had a hedge fund grafted on top of it that had drunkenly bet the house on the U.S. housing binge. If people could have seen this, the asset valuation collapse could have been incorporate in prices in near real time and prevented a huge dis-equilibrium and subsequent quick collapse. Contrary to popular misconception, this proposal would not prohibit custom derivatives.

People on the Hill who have better ideas should put them forward, but a system that allowed the consequences of the last year is definitionaly in need of repair. Just ask a harried former Republican Treasury Secretary.

5 Pretty Convenient Truths about Healthcare

5) The government will not take over healthcare in the rather unlikely political event that a public option is passed. Four of the five bills out of committee have an individual mandate requirement that precludes individuals who are already insured, or offered insurance by their employer, from leaving for a public option. Additionally, there are strong tax incentives in place for employers to continue to offer competitive insurance. Adding one more public plan to the 2500 private ones in existence, and putting them on one central exchange for consumers to search, will definitionaly result in more competition and choice.

4) The cost curve must be bent. Medicare and Medicaid could be cash flow negative in 8 years. For true fiscal conservatives the most expensive thing government could do is continue on the present trajectory of healthcare spending growth (~1.5% above inflation) with no meaningful attempt at reform. Denying or obfuscating on the need for reform is the surest way to continue to grow the public debt. By not insisting on a public option, President Obama has wisely left negotiating room for moderate conservatives not ideologically opposed to reform.

3) There is reason to believe the government could run a pretty good health benefits plan. When private insurers make money they pass a significant portion onto their shareholders and (often a larger amount) to their executives. However because the government has no profit margin, any net income the government made would go right back into Treasury’s coffers to either provide more or cheaper insurance, or pay down the debt. Government already runs three of the largest insurance systems in the world in Medicare, Medicaid and Social Security – and you haven’t heard a single opponent of healthcare reform suggest repealing any of these (a classic inter-temporal allocation problem – people love the money already committed to them, but loathe the idea of spending future money for the same improvement). Additionally, the Federal government has unique comparative advantage in negotiating lower drug and procedure costs by virtue of its size. This is one reason why Senator Baucus’ attempt at political compromise with non-profit coops (in lieu of a public plan) is well intentioned but off the mark- these would be run at the State level and miss the huge economies of scale of a Federal plan.

2) For something as important and scientific as medicine and healthcare, there should be basic best practices established. The fact that there is such a disparity in healthcare utilization across both hospitals and regions, procedures for identical conditions (like $10,000 radiation versus $200,000 proton radiation with the same success rate for prostate cancer), and a wide divergence in collection rates is definitionaly inefficient. There can be only one best way. Creating comparative effectiveness research centers and expert panels to guide technical decision-making can improve both outcomes and reduce costs.

1) The majority of opposition to reform doesn’t come from people who actually disagree with true reform. Health is one of the most universal and personal concepts imaginable, and it is understandable that people who have good existing coverage would be intensely resistant to change. But herein lies a tremendous opportunity to explain that reducing cost growth by opening up competition is not the same as denying coverage, in fact it’s the opposite. Should be a good reason to tune in tonight.

Music Video